Financial Planning Lessons Financial Planning Lessons

68
From Financial Planning Lessons Financial Planning Lessons 1 st July 2015 `45 Finapolis Finapolis www.thefinapolis.com Your Personal Finance Advisor The The 30 Is The Economy Losing Steam? 44 Nestle’s PR Disaster Investing Tips From IPL 28 Alcohol and Insurance Don’t Mix 38

Transcript of Financial Planning Lessons Financial Planning Lessons

Page 1: Financial Planning Lessons Financial Planning Lessons

From

Financial PlanningLessons

Financial PlanningLessons

1st July 2015 `45

FinapolisFinapoliswww.thefinapolis.com Your Personal Finance Advisor

TheThe

30Is The Economy Losing Steam? 44Nestle’s PR

DisasterInvesting Tips From IPL 28 Alcohol and Insurance

Don’t Mix 38

Page 2: Financial Planning Lessons Financial Planning Lessons
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4 The Finapolis l July 2015

EDITOR’S DIARYYour Personal Finance Advisor

The

For Editorial Queries

please contact

The FinapolisKarvy Centre, 8-2-609/K, Avenue 4, Street No.1, Banjara Hills, Hyderabad-500 034Tel: +91 40 23312454

Copyright The Finapolis. All rights reserved throughout the world. Reproduction in any manner is prohibited. The Finapolis does not accept responsibility for re-turning unsolicited manuscripts and photographs. All unsolicited material should be accompanied by self ad-dressed envelopes and sufficient postage.

The Things Candy Floss Films Can Teach

In India, movie sequels don’t have a track record of delivering at the box-office. However, one film that has decisively bucked the trend is Tanu Weds Manu Returns. A fairly low budget film without a big star cast, it has broken revenue records for

this year collecting in excess of Rs 150 crore according to some estimates. The film (for the few outliers who may not have seen it yet) is about the disintegrating

marriage of the UK-based physician Manu (R Madhavan) and Tanu (Kangana Ranaut), his fluttering-butterfly wife. Like several marriages, theirs too begins to suffer the consequences of two partners failing to ‘reinvest’ in the relationship from time to time. The boredom arising out of the ‘sameness’ of everyday marital life is too much be bear for the footloose Tanu. She dumps her husband and returns her hometown Kanpur only to shock her small town relatives with her new-found libertine ways. Not just that, Tanu flirts with many of her old flames, rekindling the hopes of Awasthi ji (Jimmy Shergill) in particular. This, while the pining and emotionally wrecked husband returns to Delhi and falls in love with a derring-do, rustic Jat, buck- toothed national level athlete Kusum (also played by Kangana Ranaut). The basis of his attractions is that Kusum is a spitting image of his wife Tanu.

After many adventures, Manu and Kusum are on the verge of getting married. However, a twist in the tale ensures Tanu and Manu get back together, and presumably live happily ever after etcetera.

I for one couldn’t figure out the massive appeal of the film, but our young special correspondent Hiral Thanawala was so taken in by the film that he viewed it as a metaphor for common attitudes towards managing personal finances. His cover story in this issue looks the six investing lessons you could learn from the storyline and characters of the film.

Many overseas and domestic analysts and investors seem to have mixed feelings about the performance of the NDA government on the economic front, after the initial eu-phoric phase. While some are outright disappointed, the broader view is one of cautious optimism. The government’s sympathisers contend that the economy can’t turn around dramatically merely with a change of political leadership.

However there is near unanimity that while its intentions are noble and it is working methodically, time may actually run out on it unless the government gets its act to-gether before the bugle is sounded for the next general elections. Phani Sekhar’s piece on the economy examines the nature of the problems facing the government and the things the PM can realistically fix, and those that are out of his control. The cost of failure can be exceedingly high this time around. Let’s hope for the best!

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

TR Vivek

Published for the month of July 2015Printed on July 1, 2015 Total No. of pages 68

Volume 9 Issue 04 July 2015

EditorTR [email protected]

Special CorrespondentHiral Thanawala

Editorial BoardSwapnil Pawar Amit SaxenaKP Jeewan

Design & ProductionGuru Prasath RVijayendra Kumar Ch

Advertising & CirculationShabna R Iyer Anamika Mitra

For Ad Sales [email protected]

Printed & Published byMubashir Ansarion behalf ofKarvy Consultants Limited.Karvy House, 46Avenue 4, Street 1, Banjara HillsHyderabad - 500 034. AP.

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6 The Finapolis l July 2015

CONTENTSCo

lum

ns

A.N. Shanbhag and Sandeep Shanbhag54EC Bonds: Use These Optimally

20 Filmy GyanFinancial planning lessons from Tanu Weds Manu Returns

26PolicyThe Telangana model worth copying

Cover

Story

NestleHow not to

handle a crisis

44

Adhil Shetty 5 Ways to Increase Your

Home Loan Chances

33 37

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7July 2015 l The Finapolis

Ramesh NairProperty Negotiation: Failing To

Prepare Is Preparing To Fail

Yashish Dahiya Why You Should Opt For A

Comprehensive Motor Policy

With the proliferation of smartphonesand tablet devices, reading habits are

slowly but surely changing. We understand the importance of giving readers a cross-platform choice to

access the magazine. The Finapolis is now available in a digital avatar as well

via a global publishing platform such as Magzter and Indiamags. Besides

allowing you to read on the go, the digi-tal version offers an enhanced reading experience. It also eliminates delivery delays. You can download the digital magazine on the first day of every

month. Go to www.magzter.com,Indiamags.com or Rockstand

mobile app, search for ‘The Finapolis’, sample some pages of the digital magazine, and buy a subscription

through your netbanking or credit card account. A one-year subscription for

The Finapolis digital costs only Rs 540. You need to have a device that runs

on Apple’s iOs, Android or Windows 8 operating system. Do let us know what you think of the digital experience by

writing in [email protected]

We Are DigitAl

Follow us on

twitter.com/KarvyFinapolis

facebook.com/TheFinapolis

plus.google.com/+karvyfinapolis

EconomyWhy the sentiment has suddenly slid

30

InterviewAkash Singhania,

Head-Equity, Deutsche AMC

34

Travel The hidden

delights of New York

60

ETCETERA

HeadyHow alcohol can wreck your insurance

38

43 63

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8 The Finapolis l July 2015

inboxP Phani Sekhar’s article in cover story about winning against the volatility makes sense in current scenario. The examples of Unitech and Nestle are well explained to connect with the message of intel-ligent investor. There are many such stocks which are available at at-tractive valuations to buy and hold for long term. I recommend don’t

get influenced by actions of other traders participating in the race of speculation. It’s important for us to have a better temperament than the rest to make the most of the volatil-ity while investing. I totally, agree with SIP-by-SIP method to invest in mutual funds since its best way of winning against the volatility.

- Jugal Modi, Pune

Send your feedback and views on The Finapolis to [email protected]

Get it out – Gold Monetiza-tion SchemeWhen the government an-nounced about gold monetiza-tion scheme in Union Budget there were many people keen to know more about the scheme. Since, it sounds best way to earn returns from the asset which simply sleeps in the lockers and vaults of banks. Thanks for giving detail explanation on the process of how this scheme will work at various steps. Now, understand-ing the challenges while imple-mentation of this scheme and unclarity on return rates to be offered by banks. I believe most investors won’t be willing to melt the jewellery and coins under this scheme which has sentimental values attached to it.

- Rajith Kumar, Delhi

Doctors at Central Banks are playing crucial rolesThe article was informative to share insights on current health of various major econo-mies post the global financial crisis and actions taken by central bankers across the world. The way it was presented was very creative. This keeps the readers interest intact to understand reforms being taken to cure the problems by BOJ, FED, RBI and ECB. Looking forward to read more such economy policy related articles in upcom-ing editions.

- Vishal Tanna, Rajkot

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

Alternative choice for conservative investorsYour article about capital protec-tion oriented scheme was indeed an informative piece. I am 48 years old and mainly invest in fixed deposits, post office saving schemes, etc. I am categorized as conservative investor by peers / family members. I have a

fear of losing out principal amount while investing into equities so never tried to invest in such risk return as-sets. However, now understanding the capital protection oriented scheme I feel its better avenue compare to fixed deposit to earn marginal higher returns with bit of risk appetite.

- Suresh Prasad, Bangalore

Where there is a Will, there is a WayThe article “China’s Green Energy Revolution” by John A. Mathews and Hao Tan in Finapolis June 2015 is very interesting. I feel there does not seem to be seriousness in India regarding harvesting solar power. There seems wrong policy in place of giving sub-sidy rather than giving soft loans and making it mandatory for all high rise buildings to have solar panels on the terraces and on factory roofs, to install windmills on the Western Ghats and Himalayan region and to a limited ex-tent nuclear power generation in least habituated areas. We should set up coal washeries to improve quality of coal and strictly enforce environmen-tal laws and regulations by the Central government as state governments have failed to enforce.

- G.M.Rama Rao, Visakhapatnam

Winning The War Against Volatility

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10 The Finapolis l July 2015

InCOME TAx

The finance ministry has prepared a draft discussion paper proposing tax benefits for electronic transactions (e-transactions). These are defined as transactions in which the customer authorizes the transfer of money through electronic means, and the funds flow directly from one account to another. These accounts could be held in banks, or with prepaid

Clickbait for Plastic Money Users

CORp

ORAT

E Big-hearted Jain’s parting Gift To Deutsche BankIn mid-June Deutsche Bank co-CEO Anshu Jain made a surprise announcement of stepping down from his role as he had failed to meet the expec-tations of investors. However, post resignation he will continue to work as an advisor to the bank for next six months. He did not want to finan-cially burden the bank with his own and person-al decision to quit. So, decided to let go severance pay and remuneration of about 7 million Euros annually for his role as an advisor to the bank.

He was a star performer at bank decade back and tripled taxable profits from 2003-07. He took over as the co-chief of the invest-ment banking division in 2004 and became its sole chief in 2010. He was given warm welcome for top position by investors but his reputation quickly lost its gleam. Due to string of scandals and fraud that occurred at the investment divi-sion while he was heading it.

instrument providers. These transfers could be done through means of cards (debit / credit), mobile wallets, mobile apps, net banking, electronic clearing service (ECS), national electronic fund transfer (NEFT), immediate payment service (IMPS), or other similar means.

The goal of the proposed policy is to provide the necessary incentives to use e-transactions to replace the use of cash either in government transactions, or in regular commerce over a period of time through policy intervention.

The core objectives for facilitating

e-transactions are:

³ Build a transactions history to en-able improved credit access and finan-cial inclusion.

³ To reduce the impact of counter-feit money and tax avoidance.

³ To ease the risks and costs of car-rying cash at the individual level.

The draft proposal, laid out follow-

ing points to promote usage of e-

transactions:

³ To abandon transaction charges on payments made through e-transac-tions (debit / credit card) to shop es-sential commodities, pay utility bills,

petrol, gas and rail tickets, made through plastic money.

³ Extend tax rebate to a merchant if at least say 50 per cent value of the transactions is through electronic means. Alternatively, 1-2% reduction in value added tax could be considered on all e- transactions by the merchants.

³ At present, there is a Merchant Dis-count Rate (MDR) of 0.75% on debit card transactions upto Rs.2000 and 1% on all transactions above Rs.2000. The possibility of reduction in the MDR and the rationalization of the distribution of the MDR across different stakehold-ers will be examined.

³ Tax benefits in terms of income tax rebates to be passed on to consumers for paying a certain proportion of their expenditure through electronic means.

³ Mandatory to settle high value transactions of more than Rs 1 lakh only by electronic means.

³ At present, banks have to report the aggregate of all the payments made by a credit cardholder as one transaction, if such an amount is Rs 2 lakh in a year. To facilitate high value transactions, the ceiling of Rs 2 lakh could be increased to Rs 5 lakh or more.

Ansh

u Ja

in, c

o-CE

O D

euts

che

Bank

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11July 2015 l The Finapolis

In pursuit Of SimplicityIn a bid to simplify the tax filing process, the government has introduced a three page new ITR form to file income tax returns for Assessment Year 2015-16 replacing the controversial 14 page ITR forms. This 14 page form which was notified earlier had triggered a controversy with individuals, industrialists and MPs saying the tax filing would become cumbersome as those forms sought not-so-relevant details such as credit card expenses on foreign trips .

Now, the new form has dropped such information demands. Instead, assesees now only need to give passport number and active bank account numbers. The deadline for filing returns is extended to 31 August, 2015 by the ministry.

The ‘other information’ will be captured in the ‘schedules’ which will be required to be filled only if applicable. The new forms are available for e-filing from the third week of June. Sal-

aried individuals and those without any business or profession-al income are required to file I-T returns in either ITR-1 or ITR-2. A new ITR 2A form has been proposed for individuals or Hindu Undivided Families (HUFs) who do not have capital gains, income from business/profession or foreign asset/foreign income.

InCO

ME TA

x

India’s trade deficit was at a three-month low at $10.4 billion. In April, trade deficit was $10.9 billion.

The exports and imports in May 2015 have also de-clined. Exports shrank by 20.19% (YoY) to $22.34 bil-lion mainly because of weak global demand and rupee appreciation. Pharmaceuticals and readymade gar-ments exports offered the silver lining growing by 12.3% and 5.1% respectively. However, gems and jewel-lery exports plunged by 13% and engineering goods posted a 8.2% decline.

Imports declined 16.52% from May 2014 to $32.75 billion mainly because of a drop in oil and non-oil imports. The crude oil imports dropped by 41% to $8.53 billion and non-oil imports dropped by 2.24% to $24.2 billion. The gold imports grew 10.5% to $2.4 billion from $2.2 bn in May 2014 which is 18% higher.

Export Slump Continues

MuTuAl FunD‘The Mid-Cap Mogul’ Exits IDFC AMCKenneth Andrade the Chief Investment Officer (CIO) of IDFC AMC has re-cently put in his papers to pursue entrepreneurial opportunities in investment management. He had joined IDFC AMC in February 2007 and has been con-sidered one of India’s best fund managers. His ability to identify investments for long term at attractive valuations is much admired. In 2011, Forbes mag-azine called him ‘Mid-Cap Mogul’ for his stock picking skills in mid and small cap categories.

As CIO of IDFC MF, he managed the flag-ship scheme IDFC Premier Equity Fund with assets under management (AUM) of Rs 7,229 crore. It ranks among the top 10 equity schemes. He also managed IDFC Equity Fund (AUM of Rs 291 crore) and IDFC Equity Opportunities Fund-I (AUM of Rs 274 crore). His stock picks such as Page Industries, SKS Microfi-nance, VA Tech Wabag, Blue Dart Express, Ashok Leyland and Va r d h m a n Te x t i l e s , among others has given fourfold returns.

IDFC MF Performance Under Andrade

1 Year (%) 3 Year (%) 5 Year (%) 7 Year (%)

IDFC Premier Equity 33.01 30.32 19.39 19.7

S&P BSE 500 10.49 18.6 8.85 8.37

Category Average 30.31 31.73 17.02 15.97

MACRO

Kenn

eth

Andr

ade,

CIO

, IDF

C AM

C

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12 The Finapolis l July 2015

“ I worry that we are slowly slipping into the kind of problems that we had in the 1930s in attempts to activate growth. And, I think it’s a problem for the world. It’s not just a problem for the industrial countries or emerging markets, now it’s a broader game,”

- RBI Governor Raghuram Rajan, expressing his fears of a deep economic depression of the 1930s variety

Quote of the month

Kolkata-based Bandhan Financial Services got the final nod from Reserve Bank of India (RBI) to start full-fledged com-mercial banking opera-tions from August this year. The bank plans to commence oper-ations with 500-600 branches across India. The man-agement intends to expand the reach in the east and north-eastern parts of the country with new branches. The core focus of the operations will be mainly on retail and small enter-prises. At present, as a non-banking finance com-pany (NBFC) it operates in 22 states through 2,022 branches.

Bandhan has recruited 850 experienced banking professionals at senior and middle level positions to commence with its banking operations, in addition to the 17,000 employees that the microfinance entity already has on its payroll.

In fiscal 2014-15, the NBFC’s net profit was Rs 428 crore while its bad assets were only 0.1% of the loan book. It had a loan book of Rs 10,000 crore.

Recently, the bank has raised Rs 1,020 crore eq-uity from the International Finance Corporation, Sin-gapore sovereign wealth fund GIC and Small Indus-tries Development Bank of India (SIDBI). Following the equity infusion, its net worth has gone up to Rs 2,700 crore. It’s well above the RBI’s stipulation of a minimum capital base of Rs 500 crore for new banks.

Bandhan Bank Ready To Roll

BAnkInGpEnSIOn FunD

The Union Budget had announced tax exemption under Section 80CCD for investment amount of Rs 50,000 over and above tax benefit of Rs 1.5 lakhs under Section 80C for invest-ment in National Pension System (NPS). However, there was indeci-sion among investors to put the money into this scheme due to lack of liquidity / withdrawals until re-tirement age. However, Pension Fund Regulatory and Development Authority (PFRDA) has recently is-sued following guidelines to make NPS investor friendly.

³ After completing 10 years of in-vestment in NPS, investors are al-lowed to withdraw up to 25% of the contribution for purposes like higher education and marriage of children, purchase or construction of own house, or treatment of illness of self, dependent parents or spouse. The regulations have defined 13 critical

illnesses and have extended with-drawal facility to accidents or other ailments of a life threatening nature.

³ The withdrawals are limited to a maximum of three in accumulation phase, with a difference of five years b e t w e e n t w o c o n s e c u t i v e withdrawals.

³ The new regulations for the corporate NPS (when investor contributes through employer) will now allow to exit at an age designated for retirement by employer. Earlier, an exit was available at age of 60 for all investors.

³ At retirement age, an option is given to investor to annuitize the en-tire amount or a minimum of 40%.

³ In case the accumulated pension wealth of an investor in NPS is equal to or less than Rs 2 lakh on reaching age of 60 years or on superannua-tion, the subscriber will have the op-tion to withdraw the entire accumu-lated pension wealth without pur-chasing annuity.

³ Investors have the option to defer the purchase of annuity for a maxi-mum period of three years, from the date of attainment of 60 years of age or superannuation age from company.

³ Non-government subscribers are allowed to invest into the NPS beyond the age of 60 years or the age of superannuation, not exceeding the age of 70.

A Tweak In NPS To Push Popularity

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14 The Finapolis l July 2015

FED Reserve Interest Rates unchangedThe Federal (FED) Reserve decided not to raise interest rates in June’15 meeting. The Fed has maintained status quo on the Fed-eral funds rate target range of 0-0.25%. The Federal Open Market Committee (FOMC) is also continuing its policy of re-investments to maintain accommodative financial conditions.

In the meeting Fed highlighted that prog-ress in economic development will be a deciding factor in any future funds rate decisions. The Fed will evaluate labor mar-ket conditions, employment rate, inflation and inflation expectations, and interna-tional developments. The Fed has also noted that economic activity is improving

compared to the sluggish first quarter. The unemployment rate remained unchanged at 5.5% and job growth in May 2015 re-bounded with an addition of 280,000 jobs. The housing sector was also seen to have improved with household spending show-ing moderate growth. The energy prices have also risen in the past few months sig-naling stabilization in the prices. The eco-nomic growth forecasts for 2015 and 2016 were given at 1.8%-2% and 2.4%-2.7% re-spectively. Unemployment rate for 2015 and 2016 is expected to be at 5.2%-5.3% and 5% respectively. Inflation is expected to pick up in 2016. The forecast for funds rate over the long term remained unchanged at 3.7%, while in the short term, forecasts have been lowered to 1.6% by the end of 2016. The Fed has suggested that the fed funds rate hike will be done gradually.

REpORT CARD

The Boston Consulting Group (BCG) released 15th annual report on the global wealth management industry titled, “Winning the Growth Game: Global Wealth 2015.” Key takeaways from this report are as follows:

³ In 2014, there were 928 households in India with wealth over $100 million. The percentage of private financial wealth they own is 20% of India’s wealth. This measure is projected by BCG to go up to 24% by 2019.

³ India ranks fourth globally among countries having the largest number of ultra net-worth households. The US continues to dominate with the largest number of households at 5,201, followed by China at 1,037, the UK at 1,019 and Germany at fifth position with 679 ultra HNIs.

³ Growth in wealth in the Asia-Pacific region was driven heavily by the continued economic expansion of its two largest economies India and China. India led the growth of private wealth in the Asia-Pacific region (excluding Japan), which saw a steep 29% rise in 2014 to $47 trillion (Rs 2,914 lakh crore).

India’s Ultra HNI’s Got Richer

Janet Yellen, Chair Woman,

US Federal Reserve

³ Private wealth in China and India also reflected in solid market gains, driven mainly by investments in equi-ties. China’s equity market rose 38% last year while Indian markets gained 23%.

³ The Asia ex-Japan region is expected to overtake USA as the world’s richest region in 2016, with $57 trillion in private wealth. Asia-Pacific (ex Japan) is expected to grow at a CAGR of 10%

from 2014-2019, will rise to an estimated $75 trillion in 2019.

³ Share of millionaire households is expected to grow further. Currently, mil-lionaire households (those with more than $1 million in private financial wealth) held 41% of global private wealth in 2014, marginally higher i.e. 40% in 2013. Their share is expected to rise to 46% of the global private wealth in 2019.

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India ranks fourth with the largest number of households928

households with wealth over $100

million.

5,2011,0371,019928629

USChina

GermanyIndia

UK

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15July 2015 l The Finapolis

news scanACquISITIOn

Cairn-Vedanta: Road-blocks On The Way

weet upGlad to note a report

stating that despite the reduced exposure of

investors to emerging markets, India is still the most

favoured country!

- Dr. Subhash Chandra @_SubhashChandra

tipping point : getting increasingly clear that passage

of Amended land Bill will require a joint session of both

houses of parliament.

- Vinayak Chatterjee @infra_VinayakCh

Losing 2 away ODIs to Bangaldesh is no cause

for national mourning. Rather than blame our

team, respect B-Desh as a rising cricketing force

- Shekhar gupta @Shekhargupta

Vetri Subramaniam retweeted Ramachandra Guha.

Corruption is an equal-oppor-tunity cancer-cuts across class, caste, religion & lan-

guage. But politicians are the worst

- Vetri Subramaniam@VetriSmv

FIIs, 14.3%

LIC India, 9.1%

Cairn Energy, 9.8%

Sesa Resources, 1.7%

Vedanta Ltd, 18.7%

Twin Star Mauritius

Holdings, 39.4%

Others, 7%

Share holding pattern of Cairn India as of 31st Mar, 2015The Vedanta group announced the merger of Cairn India (Cairn) with Ve-danta Ltd. However, analysts expect the merger will have many challenges en-route. First they require key approvals from many entities as discussed herein.Key approvals required from:

³ Stock exchanges (NSE and BSE) and SEBI ³ High court of India and other regulators for arrangement of scheme ³ Ministry of petroleum and natural gas to get consent for transfer of pe-

troleum mining rights ³ Vedanta and Cairn India’s shareholders ³ Minority shareholders require to give an approval to the deal ³ Foreign Investment Promotion Board

Destiny of this merger dependent on approval from LIC Life Insurance Corp (LIC) owns 9.1% of stake in Cairn, second largest minor-ity shareholder after Cairn Energy which owns 9.8% (refer to shareholding pattern given). The minority shareholders have been offered one equity share of Vedanta Ltd and a 7.5% redeemable preference share of Rs 10, for each share held in Cairn. LIC feels the offer is not lucrative to accept it. They have raised concern over the valuation of the offer for the merger.

Page 16: Financial Planning Lessons Financial Planning Lessons

16 The Finapolis l July 2015

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

During Q4FY15, most of the

fast moving consumer goods

(FMCG) companies reported

lower than expected earn-

ings. Despite favourable cost

environment and increased ad-

vertising and promotion (A&P)

investments, consumer com-

panies were not able to post

strong volume growth during

the quarter. Our analysts con-

tinue to remain cautious on the

consumer sector and believe

that the monsoon would play

vital role in overall sector per-

formance. In addition, ongoing

concerns related to economy

and rural growth would remain

key challenges, going ahead.

Sector revenue growth was

below estimate

FMCG universe which our

analyst track reported 8.8%

YoY revenue growth in Q4FY15

which is below estimate of

10.2%. The companies such as

Marico and Asian Paints Ltd

(APL) reported lower than

estimated revenues while other

companies were able to match

our expectations. Lower than

estimated volume growth

restricted revenue performance

for Marico and APL. During the

quarter, Marico reported high-

est revenue growth at 14.4%

whereas APL reported lowest

growth at 6.9%.

Softening commodity prices

expanded Gross Margin

Our FMCG universe reported

260 bps expansions in gross

margin (GM) during the quarter

benefiting from favourable

commodity price environment.

Except Marico all other compa-

nies posted 200-320 bps ex-

pansion in GM. Marico recorded

mere 20 bps expansion in GM

due to mix impact of lower

volume growth, comparatively

firm copra prices, unfavourable

currency impact and de stock-

ing during the quarter.

Operating profit grew in line

with estimate

The positive impact of benign

commodity prices was partially

offset by higher A&P spends

resulted in 20.2% growth in op-

erating profit during the quar-

ter in line with our estimate of

19.3%. Colgate reported highest

growth in operating profit at

26.4% while Marico posted

lowest growth at 11%. Hindu-

stan Unilever (HUL), APL and

Dabur reported 22.3%, 17.7%

and 17.0% operating profit

growth during the quarter

respectively.

Lower operating profit margin

(OPM) expansion than GM

expansion

In line with our analyst as-

sumptions, the OPM expansion

during the quarter was at 160

bps lower than GM expansion.

Colgate reported highest OPM

expansion at 300 bps whereas

Marico reported 40 bps con-

traction during the quarter.

HUL, APL and Dabur recorded

200 bps, 150 bps and 100 bps

expansion in OPM respectively.

During Q4FY15, our FMCG

universe recorded 11.4% YoY

earnings growth in APAT com-

pared to our estimate of 15.3%.

Marico reported highest growth

at 24.0% while HUL reported

lowest growth at 3% during the

quarter. Colgate, Dabur and

APL reported 23.7%, 21.0% and

19.5% YoY growths during the

quarter respectively.

Our analysts maintain cau-

tious view on consumer sector.

Broadly, Q4FY15 performance

was in line with our analyst

estimates; however, we have

tweaked estimates to factor

in quarterly results. We have

revised our FY16 and FY17

estimates downward by 1.2%

and 2.0% respectively against

consensus downward revision

of 4% for FY16 and FY17.

sector update

Fast moving consumer goods sector update – Q4FY15 Review

Valuation Summary

Company CMPRs/Sh.

TPRs/Sh.

Up/ Down

%

Revenue (Rs mn) EBITDA (Rs mn) EPS (Rs/Sh.) P/E (x) EV/EBITDA (x)

FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E

Asian Paints 739 816 10.4 127,148 142,975 168,376 198,249 20,161 22,733 28,380 34,804 12.6 14.8 18.8 23.3 58.5 49.8 39.3 31.7 36.1 32.0 25.7 20.9

Colgate 1,898 2011 5.9 35,449 39,867 44,882 50,776 6,319 7,932 9,176 10,585 34.8 39.6 44.9 52.1 54.5 48.0 42.3 36.4 42.8 34.1 29.4 25.5

Dabur 253 268 5.9 70,944 78,295 89,577 102,734 11,626 13,217 15,891 18,068 5.3 6.1 7.4 8.4 48.1 41.5 34.4 30.2 40.9 36.0 29.9 26.3

HUL 820 839 2.3 280,191 308,171 343,204 380,429 44,913 51,255 61,992 67,301 16.9 17.8 21.9 23.5 48.6 46.0 37.5 34.9 42.3 37.1 30.7 28.2

Marico 422 405 (4.0) 46,865 57,996 66,855 77,453 7,511 9,133 11,140 12,885 7.5 9.3 11.4 13.1 56.0 45.2 37.0 32.3 34.0 28.0 22.9 19.8

Source: KSBL

Page 17: Financial Planning Lessons Financial Planning Lessons

17July 2015 l The Finapolis

J Kumar InfraprojectsJ.Kumar Infrapro-

jects (JKIL), being

a pure EPC player,

primarily focuses

on urban infra-

structure with large

presence in transporta-

tion segment (metro, flyovers,

bridges and roads). The compa-

ny is expected to benefit from

the government’s emphasis on

development of urban infra-

structure, particularly Mumbai

and Ahmedabad metro. JKIL

has developed strong techni-

cal and execution capabilities

which are reflected in its robust

order book, expected strong

order inflow and revenue vis-

ibility. Analysts expect JKIL to

enjoy superior EBITDA margin

led by owned machinery

and minimal subcon-

tracting.

JKIL’s fresh

order inflow of Rs

4.5 bn/Rs 14.1 bn

in Q4FY15/FY15,

resulted in a robust or-

der book of Rs 30.2 bn (2.3x

FY15 revenue). Transportation

segment comprises the major

92.4% of the order book. The

company is L1 in orders worth

Rs 11.3 bn. JKIL is likely to win

one to two packages (Rs 20-

50 bn) of Mumbai Metro Phase

III by Aug’15 where it had bid

for six out of seven pack-

ages with total project cost

of Rs 180 bn (approximately).

Moreover, it has strong bid

pipeline of Rs 680 bn (Rs 60

bn Ahmedabad Metro, Rs 450

bn Mumbai Metro Phase II and

IV, Rs 20 bn Noida Metro, Rs

50 bn various Mumbai road

projects, Rs 100 bn Mumbai

Coastal Road project, etc). Tak-

ing all these into consideration

analysts expect fresh orders

worth Rs 28.5 bn/Rs 31.4 bn in

FY16/FY17.

Despite 26.6% revenue CAGR

during FY15-17, analyst expects

JKIL to maintain its invest-

ment in net working capital at

comfortable level of 48.7% (as

a percentage of revenue) over

FY16 and FY17. JKIL’s healthy

revenue growth and superior

EBITDA margin (18.3%) will

drive a CAGR of 37.8% in its

bottom line during FY15-17.

Analysts, therefore, expect

the RoCE and RoE to improve

to 21.3%/18.1% in FY17 from

17.6%/13.8% in FY15. Based on

its impeccable past track record

and growth prospects, the re-

cent price correction offers an

effective entry point. Consider-

ing this analyst has valued JKIL

at 14.5x FY17 EPS. At current

valuation, there seems potential

upside of 37% to price levels of

Rs 806.

company update

State Bank of IndiaState Bank of India (SBI) is

one of the few PSU banks

which have reported an

improvement in its asset

quality in FY15. In a tough

economic scenario, the bank

has reported gross non-per-

forming asset (GNPA) decline

from 5% in Q4FY14 to 4.3% in

Q4FY15 led by lower slippages

during the year. Advances

growth remained on the lower

side (7.5% YoY) as the bank

focused on cleaning up its

books. Going ahead, along

with a gradual improvement in

the economy, analysts expect

the improved performance of

the bank to continue. SBI is

also one of the few PSU banks,

who are adequately capital-

ized with a Capital Adequacy

Ratio (CAR) of 12% with

a tier I capital of

9.6%. In the current

economic scenario,

analysts believe

SBI to be the only

PSU bank to be able to

weather the uncertainties.

Along with an improve-

ment in the economy in FY16

and FY17, analysts expect the

advances growth to improve.

Analysts expect the SME and

retail advances to support the

overall advances growth for

the bank. However corporate

growth which has remained

a key dampener for credit

growth for the sector as well

as for the bank is expected to

report a muted growth of 5%

over FY15-17. Analysts expect

the advances to grow by 13%

CAGR over FY15-17.

The lower slippages

in FY15 have sup-

ported the asset

quality improve-

ment for the bank.

Though the fresh

restructuring during

the year remains on the

higher side, analysts expect

the same to decline in going

ahead due to closure of RBI’s

special window. As the eco-

nomic revival continues, asset

quality improvement is likely

to continue. Though slippages

from restructured accounts

are expected to continue in

FY16 as well, we expect GNPA

and net non-performing asset

(NNPA) to improve to 3.7%

and 1.7% by FY17 from 4.3%

and 2.1% in FY15.

Analysts expect the earnings

to grow by 19% CAGR over

FY15-17 led by 13% growth

in advances over the period.

The return ratios (Return on

Assets and Return on Equity)

of the bank are also expected

to improve from 10.6% and

0.6% in FY15 to 12.5% and 0.7%

in FY17. Analysts believe the

recent price correction offers

an effective entry point.

Analysts have valued SBI at

1.9x FY17 ABV to arrive at sum

of the parts (SOTP) based

price of Rs 319 and there

seems potential upside of 25%.

Current Market Price Rs 589

Target Price Rs 806

Potential Upside

37%

Current Market Price Rs 255

Target Price Rs 319

Potential Upside

25%

Page 18: Financial Planning Lessons Financial Planning Lessons

18 The Finapolis l July 2015

How The Uber Rich Are DoingEven in the time of a global slowdown, the fortunes of the mega rich only got better. Here’s how their wealth stacks up.

the chartist

Global Trends

$20.8tn

172,850

3%

82%

$153bn

The total wealth held by UHNwIs

The total number of UHNwIs worldwide

Increase in thenumber of UHNwIs

2013 to 2014

% of wealth advisorsreporting the net worth

of their UHNwIclients increased

The estimated commercialproperty investment by

private individuals

An ultra-high-net-worth individual (UHNWI) is someone with a net worth of over $30mn.

Page 19: Financial Planning Lessons Financial Planning Lessons

19July 2015 l The Finapolis

So

urce

: RC

A, K

nig

ht F

rank

Res

earc

h

ultra High net Worth populations and total wealth by region in 2014

Top five private realty deals of 2014 ($ Million)

436

North America

44,922 Europe

60,565

Latin America

9,902

Russia/CiS

2,068

Asia

42,272

Australasia

3,920

Middle East

7,269Africa

1,932

Predicted UHNWI 10-yr growth 25%Total UHNWI wealth $5.5tn Predicted UHNWI 10-yr growth 25%

Total UHNWI wealth $6.4tn

Predicted UHNWI 10-yr growth 50%Total UHNWI wealth $1.2tn

Predicted UHNWI 10-yr growth 25%Total UHNWI wealth $600bn

Predicted UHNWI 10-yr growth 48%Total UHNWI wealth $5.9tn

Predicted UHNWI 10-yr growth 23%Total UHNWI wealth $400bn

Predicted UHNWI 10-yr growth 40%Total UHNWI wealth $700bn

Predicted UHNWI 10-yr growth 59%Total UHNWI wealth $200bn

Type: OfficeCity: FrankfurtBuyer: Susanne Klatten

WInx– The Riverside Tower

1,152

Type: OfficeCity: LondonBuyer: Safra Group

30 St Mary Axe

350

Type: RetailCity: MoscowBuyer: The Gutserievy Brothers

novinsky passage

226

Type: OfficeCity: TorontoBuyer: Amancio Ortega

Renaissance plaza

336

Type: HotelCity: WorldwideBuyer: Adrian Zecha in JV with Peak Hotels and Resorts

Aman Resorts

Page 20: Financial Planning Lessons Financial Planning Lessons

20 The Finapolis l July 2015

FIlmy GyaN

Six things that the Bollywood blockbuster teaches you about managing money By Hiral Thanawala

Financial Planning Lessons from Tanu Weds Manu Returns

Sequels hardly ever work in India. However, Tanu Weds Manu Returns (TWMR), a fairly low budget film and sans big name stars has broken several box office records with collec-tions exceeding Rs 150 crore according to some estimates.

In short, the film is about the disintegrating mar-riage of the UK-based physician Manu (R Madhavan) and Tanu (Kangana Ranaut), his fluttering-but-

terfly wife. Like several marriages, this too begins to suffer the consequences of the two partners failing to ‘reinvest’ in the relationship from time to time. The boredom arising out of the ‘sameness’ of everyday marital life is too much be bear for the footloose Tanu. She dumps her husband and returns her hometown Kanpur only to shock her small town relatives with her new-found libertine ways. Not just that, Tanu flirts

with many of her old flames, rekindling the hopes

COVER STORY

Page 21: Financial Planning Lessons Financial Planning Lessons

21July 2015 l The Finapolis

of Awasthi ji (Jimmy Shergill) in par-ticular. This, while the pining and emo-tionally wrecked husband returns to Delhi and falls in love with a derring-do, rustic Jat, buck- toothed national level athlete Kusum (also played by Kangana Ranaut). The basis of his attractions is that Kusum is a spitting image of his wife Tanu.

After many adventures, Manu and Ku-sum are on the verge of getting married. However, a twist in the tale ensures Tanu and Manu get back together, and presum-ably live happily ever after etcetera.

The opinion about the film differed sharply in our newsroom. I loved the gags. And apparently so did millions of others helping the producers to laugh their way to the bank. My editor claimed to have slept through the second half. ‘There are more holes in the script than a block of Emmental cheese,’ he argued, adding pre-tentiously that the ending was clichéd.

The film’s success seems in large part thanks to the audience relating person-ally and deeply to the story of a marriage suffering from stasis. I found there were many similarities, and lessons when it comes to a marriage and our relation-ship with finances. Considering my edi-tor was perhaps in a minority one in his dislike for the film, I thought it would make sense to look at the personal fi-

nance lessons this hilarious film offered. Here we go.

lesson 1: ‘Apni haalat dekho before consulting a Doctor’ After four years of being married, Tanu and Manu were growing further apart. They both had a baggage of problems with each other. The movie begins with the couple meeting with a team of psychiatrists in London. The differences were so rancorous that they started arguing bitterly in the presence of doctors without giving each other a fair chance to resolve their differences with equanimity.

Financial Planning Perspective: In the current environment where life-style and stress related issues constant-

ly chip away at marital relationships, it would help greatly if finances were not one an addi-tional pain point. It’s useful to have common-ality to financial goals, transparency and hones-ty in money matters. Con-sult a financial advisor.

Appoint a Chief Finance Officer (CFO) between the two of you to execute the financial decisions you jointly make. While commonality of goals

is good, retain a reasonable level of individual financial sovereignty. Relationships where the couple, mostly in the callow days of a marriage, share email and Facebook passwords, things soon approach disaster point sooner than later. Never completely give up financial decision making to your partner, or become entirely reli-ant on them.

Share the burden of debt equally and create a plan to clear outstanding debt as early as possible.

Create a cash flow with sources of income and maintain a budget of ex-penses while keeping track of it on regular basis.

Appoint your spouse as nominee / joint holder in investments and insur-ance policies.

Discuss financial goals with time-frame which are realistic and seems achievable. (Refer table Financial...)

COVER STORY

Financial planning Goalspriority of

Goal Financial Goal Current Value

Years to Achieve the Goal

Inflation (assumed)

1 Children’s Education Rs 25 lakh 15 10%

2 Retirement Corpus Rs 5 crore 30 7%

3 New Home Rs 1 Crore 5 7%

4 Car Rs 10 lakh 3 7%

Page 22: Financial Planning Lessons Financial Planning Lessons

22 The Finapolis l July 2015

lesson 2: Don’t lust after supernormal returns. Retain a sense of realism when investingOne of the perks for Tanu of getting married to Manu, an NRI settled in Lon-don was the freedom of West, and a flam-boyant lifestyle. But in reality, their life was one of unremarkable middle class-ness in Southall, for all purposes an Indian ghetto in London. Tanu’s aspira-tions of a swish lifestyle in London fell way short of the reality of her hus-band’s financial status. That disappoint-ment contributes significantly to her desire to break away.

Financial Planning Perspective: While investing in stocks, real estate or any other asset, don’t have unrealistic return expectations. There are many who in the heady years of 2007-08, just before the almighty economic crash, took personal loans at the rate of 20% in order to invest in the stock markets which they believed would double the investment in a few months. It was not unusual in those days for stocks to run up nearly 50% a month or so after listing on the bourses. Irrational exuberance doesn’t last long. If you are in the game

for 100% returns year after year, try something else. While some fundamen-tally good stocks turn out to be multi-baggers, they are few and far between. Consider 15-20% annualized returns over the medium term decent.

lesson 3: Multiple love interests can be disastrous. Be stableAfter returning home to Kanpur, Tanu meets her ex-boyfriends and tries to re-live the past in all its glory, with her trademark coquettishness, raising the their hopes that a re-union was somehow possible. She indulges herself while not legally separated from her husband. The husband meanwhile is hoping she’d call.

This messes up not just her life but her former boyfriend Awasthi ji’s as well.

Financial Planning Perspective: Just as Tanu carried on with her merry flirtatious ways, investors too keep on jumping from one stock to other in search of quick gains. Financial experts advise against constant portfolio churn. When you purchase good quality stocks, don’t be swayed by short-term ups and downs in the counter.

The portfolio requires stability over the long term to grow and generate healthy returns. Trading on news flow will not take you closer to your corpus required for goals. The problem most people have when looking at the news seems to be that they take it too seri-ously. For example, if a big company misses earnings should everyone really sell out? Long-term investors should hold positions based on an outlook of many years, not weeks or months.

In case understanding fundamentals of stocks is too taxing, opt for mutual fund SIPs. Develop the practice of aligning your investments with particular life-cycle goals and re-align portfolio when those goals are in sight. Such discipline will bring stabil-ity and get you closer to the goals.

COVER STORYThe portfolio requires stability over the long

term to grow and generate healthy returns. Trading

on news flow will not take you closer to your corpus

required for goals. The problem most people have when looking at the news seems to be that they take

it too seriously

Page 23: Financial Planning Lessons Financial Planning Lessons
Page 24: Financial Planning Lessons Financial Planning Lessons

24 The Finapolis l July 2015

lesson 4: ‘Reebok nahi toh Ribook sahi’-- Don’t invest in a stock because it’s cheap imitation of a blue chipWhile Kangana’s two avatars Tanu and Kusum look somewhat similar, their per-sonalities are as different as chalk and cheese. One is a high-life loving rebel, the other earthy and tenacious. When Tanu finds that her husband has fallen for an ‘unrefined’ version of herself, she taunts Manu by saying: ‘Reebok nahi toh Ribook sahi”.

Financial Planning Perspective: Many investors thinking blue chip stocks in a sector too expensive, go for small or mid cap stocks in the same business hoping that those would miraculously offer the same returns the blue chips historically did. It’s not necessary that when gover nment infrastructure spending perks up, every engineering and construction firm would benefit to the same levels of L&T. The performance of a firm is determined

not merely by favourable business climate but by the quality of the management, execution capabilities and soundness of business strategy. Many investors take a punt on the small caps because it trades at Rs 50 compared to

L&T’s Rs 1500. Don’t fall for superficial resemblance of stocks.

lesson 5: Don’t take the relationship for granted. Irrigate it with attentionThe drifting apart of Tanu and Manu happens because trapped in their indi-vidual predilections, they stop paying attention to the other’s desires and aspi-rations. It occurs when partners start taking each other for granted. Everyday struggles suck the romance out. They stop making the extra effort to see what their partner is seeking.

Financial Planning Perspective: Similarly with financial planning, many people lose interest or the complexities overwhelm them. Financial planning needs close attention. Procrastination leads to missed opportunities, addition-al costs, penalties and in many cases huge losses.

lesson 6: Move on. Don’t cling to bad investments and ideas The reality of life is that there may be a time when partners become wholly incompatible. Their pursuit of happiness and contentment may take them in completely opposite directions. Often they resist separation or moving on for the wrong reasons such as societal pressures. One of the weaknesses of TWMR is that there seems to be very little in common with Tanu and Manu, and no signs of any deep underlying attachment to the other even when they decide to get together again. Given their differences, its hard to see them living happily ever after. May be that’s the idea of the makers of the film—to be able to make a trilogy perhaps!

Financial Planning Perspective: Don’t cling on to loss making invest-ments. Cut your losses and move on. Don’t get emotionally attached to stocks or other assets. Gold may have given you good returns in the past.

But if there’s no great upside in the horizon now, just sell and invest in some-thing else. F

Many investors thinking blue chip stocks in a sector too expensive, go for small

or mid cap stocks in the same business hoping that those would miraculously offer the same returns the blue chips historically did

Financial planning needs close attention.

Procrastination leads to missed opportunities,

additional costs, penalties and in many cases

huge losses

COVER STORY

Page 25: Financial Planning Lessons Financial Planning Lessons

25July 2015 l The Finapolis

Clear Tax, ConTenT Team

tax relief

For a taxpayer who is just looking to save taxes and create wealth, there are so many investment options

listed within Section 80C that they end up confusing him than helping.

So, How Should A Taxpayer Go About picking An Investment? All the schemes listed under Section 80C offer tax break uniformly at the time of investment. Subject to a maximum of Rs 150,000, money invested can be deducted from your taxable income in your income tax return.

But then there are several factors such as the age of the investor, the duration for which the money is locked in, the risk involved and the historical rate of return, that has be considered before zeroing in on one.

One of the overlooked aspects of choos-ing an investment however is the after-tax return on investment. Not all of the schemes yield good returns because the return is small after taxes are paid on them.

To maximize your returns, pick invest-ments that are not taxable at the time of withdrawal and schemes where interest and dividends earned are also tax-exempt.

Completely Tax-Free InvestmentsThe completely tax-free nature of this government-backed instrument has con-tributed to Public Provident Fund’s (PPF) large subscriber base in India. If safe and guaranteed returns are what you covet, then look no further than PPF.

With the same benefits as a PPF account and a higher rate of return of 9.2%, the newly-introduced savings scheme Sukan-ya Samriddhi Scheme is better for your girl child.

Both Sukanya Samriddhi and PPF are long term though. The money is locked in a PPF account for 15 year and in the case of Sukanya Samriddhi Scheme, the money stays invested until the girl turns 21. Equi-ty-linked savings scheme comes as a relief

then because it is an investment with the shortest lock-in within all of the Section 80C. Dividends and gains made thereof are completely tax-free too. These tax-saving mutual funds also promise a higher rate of return albeit higher risk that you could make less than what you invested.

Unit-linked Equity Plan is an insurance plan as much as it is an investment. But unlike your regular insurance policy, the returns are related to market performance, therefore one must thoroughly understand the risk involved. One portion of your in-vested amount goes towards life insurance and the rest goes into a fund that is equity- or debt based. These are also tax-free at the time of withdrawal or maturity.

Investments Taxable At The Time Of WithdrawalHeavily incentivized by the Government this year, the National Pension Scheme helps investors build a retirement corpus. The investment is locked up till the inves-tor turns 60. One can withdraw up to 60% of the corpus after turning 60, and the remainder will be given out as monthly pension. The lump sum portion of the

pension corpus fund is wholly taxable at the time of withdrawal and the monthly pension is taxable too.

Investments Where Interest Is Taxable 5-Year Fixed Deposits The Indian savings staple fixed deposits is one that is known to all. Fixed deposits of five year or more with a scheduled bank are eligible for deduction under section 80C. For an extremely popular investment avenue, this is surprisingly not very tax-efficient. The interest earned from the fixed deposits is fully taxable and only the investment is tax-deductible. National Savings CertificateThe Government of India savings bond -- National Savings Certificate (NSC) comes with two lock-in periods with different rates of return. The 5-year NSC yields a rate of return of 8.5% while the 10-year NSC gives a 8.8% rate of return. NSC has a slight edge over PPF in two aspects i.e. the return rate is unchanged until matu-rity so you exactly know what’s due at the time of withdrawal and flexibility to choose the lock-in period that suits your goals. The interest earned however is taxable.

The Bottom line Investing in Section 80C schemes is the first step to save money and cut down on your taxes both at the same time. But if you wish to keep more of your investment earnings to yourself, then take into ac-count the tax treatment of the money earned. F

Squeezing Full Value out of 80C

ClearTax is India’s largest Income Tax e-filing website. They can be contacted over email: [email protected]

To maximize your returns, pick investments that are not taxable at the time of withdrawal and schemes

where interest and dividends earned are

also tax-exempt

Page 26: Financial Planning Lessons Financial Planning Lessons

MAnuFACTuRInGlEssoNs From TElaNGaNa

Behind the serious persistent concerns about the faint recovery of India’s industrial econ-omy lies the fact that our investment climate may have failed to inspire confidence in In-dustry to jumpstart investments. Capital spend by India Inc. continues to stay muted

even in FY16. This is because of a number of reasons. Chief

among them is the delays in taking right, co-ordinat-ed decisions by the centre and states, at the right time and India not being able to manage the political economy of industrialization effectively. These has prevailed a high level of mistrust between state gov-ernments and the centre. As a result, the unlocking of the stuck projects and the associated difficulties faced on the front of ease of doing business have be-come major issues today. From all available evidence, the PM realized the problems this posed even before he resumed office. His stump speeches always carried strong references to competitive and co-operative federalism, and the need for all chief ministers and the PM-led centre to work as ‘Team India’. That is evidently easier said than done. To be fair, Mr Modi has inherited a system hardened by nearly half a century of centre-state mistrust.

A government is like a supertanker. It can’t be turned on a sixpence. While being mindful of the vastness of the challenge, are there some lessons the centre can learn from within the country?

In this context, in comparison to the Modi govern-ment’s hard struggle to evolve a business-friendly environment in the country, the recently formed Telangana government led by K Chandrasekhar Rao has accomplished a great feat at one stroke by walking

From Red Tape To Red CarpetTelangana’s bold new ‘right to project clearance’ promise as part of a fresh industrial policy can prove transformative if implemented well By Kiran Nanda

26 The Finapolis l July 2015

Page 27: Financial Planning Lessons Financial Planning Lessons

MAnuFACTuRInGthe talk with its announcement of the ‘right to clearance’ policy. This, coupled with a number of other features of the new state’s industrialization programme, is a significant move depicting empower-ment of Telangana.

Good governance principles becoming an integral part of state policy formulation, in economics of various states, are bound to turn out to be crucial differentiators.

The ‘right to clearance’ policy seems to have some similarities to the Right to Information Act, which has proved im-mensely beneficial in increasing trans-parency. ‘Right to Clearance’ is an indus-try friendly move and recognises that businesses also have the right to know why project related decisions get persis-tently delayed and to demand redressal for their unanswered doubts and un-solved pressures.

Despite the abolishing of the licence raj as far back as in 1991 and subsequently other related initiatives, the bureaucratic red tape and corruption prevail even to-day. Industry continues to be dependent on the whimsical policies and procedural hassles at the hands of authorities. The innovative ‘Right to Clearance’ involves a provision of imposition of a fine of Rs 1,000 on officials for each day of delay in granting clearance to a project, besides allowing businesses to know the exact reason why a proposal has been blocked. It also sets a 15-day time limit for the clear-ance of mega-projects involving over Rs 200 crore, and of one month for smaller projects. If this deadline gets missed by the authorities, the project will get auto-matic deemed approval. These, along with

other provisions of the policy such as single-window clearance and self-certifi-cation will facilitate creation of an auto-matically operated eco-system facilitating the ease doing business environment in the state. The policy is likely to make a great difference to the unlocking of the stuck projects.

The opportunity costs of clearance de-lays are high involving huge time and cost overruns. The comptroller and auditor general (CAG) reports at regular intervals have been bringing out shocking statistics of such costs being borne by the industry and economy. The mounting cost and time overruns have impacted the viability not just of industries but also of lending bodies thereby resulting in formation of complex bad loans or non performing assets (NPA). No wonder, projects worth crore of rupees are awaiting clearances across the country.

Against such a sordid scenario, the an-nouncement of the Telangana Industrial Policy seems particularly welcome. The ‘Right to Clearance’ will be aided by the promise given to Industry of “a graft-free and hassle-free system” that will be instru-mental in removal of lobbies and middle-men. The policy has been welcomed by leading industrialists. Some of them have even started announcing projects. It seems

Industry now has a sense of reassurance and renewed belief that the Telangana government is serious about creating an outstanding industrial ecosystem.

Moves such as this can only help mak-ing the bureaucracy free from inertia, and inject a sense of urgency and responsibil-ity into the state’s entire governance en-vironment. Other states will have to match this offer by similar innovative ideas if they don’t want to be left out from the increasing inter-state competitive policies for attracting investments.

There is, however, one thing the gov-ernment will have to be careful about. The entire project-appraisal chain should not only revolve around speedy clear-ances. Proper due diligence will have to be taken for the entire process of clear-ances. Merely concentrating on speed is not enough lest these result in ill-con-ceived or poorly-structured projects get-ting rushed through.

This move is reminiscent of the Maha-rashtra government’s road policy which resulted in the Mumbai-Pune highway project finishing in record time much ahead of the scheduled time. This was done by implementing a carrot and stick policy of penalty and incentive towards finishing the project before time and avoiding the massive cost and time over-runs from taking place. The policy deci-sion proved highly successful.

In sum, what the Telangana government has done is just to take an initial unique welcome step to boost investments in the state. This has to be persistently followed by more such steps and to also update the policy as an ongoing exercise. As the poli-cy formulation today has become an ex-tremely sensitive issue, this Industrial policy should be an open one. Implementa-tion and execution of the policy ought to be carried out with the same spirit. NITI Aayog institution, whose primary task is to make the centre-state relations produc-tive for promoting the national interests, may be entrusted with the task of compila-tion of a list of good governance practices by States. Such an endeavor by spreading awareness will enable creation of a healthy federalism. F

The ‘right to clearance’ policy seems to have some similarities to the Right to

Information Act, which has proved immensely

beneficial in increasing transparency

³ Right to timely clearances provision included in the policy

³ Self - Certification to be accepted. If self -certification is false, the Applicant to be liable for action

³ 15 days clearance for mega projects

³ Penal provisions if departments delay clearances

³ Single common Application form prescribed

³ Grievance redressal mechanism to be created

³ Graft free & zero tolerance to corruption

Telangana Industrial policy - Highlights

27July 2015 l The Finapolis

Page 28: Financial Planning Lessons Financial Planning Lessons

InVESTMEnTPINcH HITTING

Using systematic investment plans (SIP) in mutual funds is perhaps the best wealth medication for people of this nation because

1. India is a young country and the re-source of “time” is available

2. India is a developing country and hence people have income but less wealth

3. Hence people are capable of investing small amounts for the long term, the ideal mix for wealth creation over the long term.

But despite this opportunity1. Why are people shying away from start-

ing their SIP in a mutual fund? 2. Why is it that people feel there is a big

risk in starting an SIP in a mutual fund? 3. What is the nature of this risk?

What Is The ‘Risk’ Of Investing? Is It Different Than What We Think?

‘Risk’ in the mind of an investor is about losing his money. While the practitioners

see ‘risk’ as volatility, the helpless cus-tomer sees it as losing his hard earned money. It is crucial to bridge the percep-tion gap of ‘risk’. Unless this gap is bridged how people will step up their in-vestments and pave a path to walk into a promising future.

understanding ‘Risk’ The Ipl WayWatching Indian Premier League (IPL), I stumbled upon an idea to help people understand the concept of risk of invest-

Investment Ideas From IPL

As in cricket, so in investing, it’s all about finding the delicate balance between playing out the tough overs to launch an all out attack when the wicket flattens out By Dharmendra Satapathy

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InVESTMEnTing. What better way to explain than through the most endearing lens of IPL?

In every IPL game, the batsmen are meant to score big in every over. After all they just have 20 overs to play. But a keen follower of the IPL game knows that it does not pan out in this manner. The bats-men have a different strategy, which is: - The batsmen play a guarded game against good bowlers and reserve their hitting power for the weaker bowlers. If Chennai Super Kings (CSK) plays Mum-bai Indians (MI), the CSK batsmen would be guarded against Lasith Malinga but would go after say a Vinay Kumar who appears easier to score against as com-pared to a Malinga. Most of the time this strategy works and in just few big overs the batsman compensate for their silence against Malinga.

The batsmen use the opening overs when field restrictions are in place to take their chances, go over the in-field with lofted shots and make quick runs. The run rate is usually high in the first 8 overs. The middle overs are used for consolidation. It’s the time of the game when the batting team tries to stitch a good partnership and conserve wickets even though run rate climbs down to say five runs per over. The final five overs are built upon the success of middle overs. If wickets are in hand and if the run rate has been good you can expect big hitting in the final five.

Sometimes it could be 80 runs in 5 overs which takes the final run rate to some-where between 8 to 10 runs per over.

The Investment Connect In the same manner investments in mu-tual funds too score in an inconsistent fashion. Some years when the market is bullish and when the environment positive (when the bowling is easy) ‘returns’ are high and in other years when the mood is somber and the markets are bearish (when the bowling gets difficult like a Malinga over) the ‘returns’ are low. But ultimately in the long term the returns are reason-ably good just as in the IPL the run rate at the end is usually respectable.

Ipl Way It is seen in an IPL match that usually no two overs are alike as far as runs per over are concerned. Every over is treated based on its merit. Hence the run rate is not consistent across the overs. The final run rate is derived from the final score.

Investment Way ‘Investing’ is similar in conceptual sense. While we do say that ‘returns’ over the past 20 years is 15%, it does not mean that in every year of let’s say a 20 years investment journey would fetch a return of 15%. There could be some years in this period when the fund returned 50% and there could be some years when the fund returned even a minus 10%. In years when the market is bullish, one often gets to see markets gallop northward. On other oc-casions when market is bearish markets spiral southward.

Hence like the IPL run rate, which was not consistent across overs, the invest-ment returns too are not consistent across the years. This mix of years returning 5%, 10%, 25%, 100%, 0% etc. throws up a final asset value which determines the ‘re-turns’ just how the final score determines the run-rate.

Ipl Way In an IPL game it is a few big overs in between that change the tempo of the game. A few overs of 15 to 20 runs per over when the bowling is weak substantially take the overall run rate up. Similarly a few great overs from say Lasith Malinga can dry up the runs bringing the run rate down.

Investment Way It is similar for SIP investing where the investment buys more units when the markets are stumbling like how sixes are smacked when the bowling falters. Ad-ditional units purchased during the mar-ket ‘lows’ accelerate the final “return” just like runs made in big overs raise the run rate. Likewise during the bull phase when the markets are rocking the SIP investment buys lesser number of units just like when runs dry up during a great bowling spell.

Units purchased during market highs retards the ‘returns’ just as one or two great Malinga overs can take the game away from the batting side. Clearly bad market conditions are good for long term returns just as a bad bowling leaking away runs is good for the team’s final run rate.

understanding Risk Of Investing The above examples show the inconsis-tencies of scoring ‘runs’ and scoring ‘returns’ and herein lays the intended meaning of ‘risk’ of investing.1. ‘Risk’ is the volatility or inconsisten-

cy in run rate over the 20 overs of an IPL game and likewise in the incon-sistency of returns over the years of SIP investing.

2. Therefore one should understand that in the case of a mutual fund invest-ment the ‘risk’ is certainly not of los-ing money just like in an IPL match the risk is never about a team-scoring zero at the end of 20 overs.

In sum, one should keep investing across different market cycles. You never know when you’ll get the opportunity of scoring big. Hence keep the investment effort systematic despite the changing environment. F

‘Risk’ in the mind of an investor is about losing his

money. While the practitioners see ‘risk’ as

volatility, the helpless customer sees it as losing

his hard earned money

Dharmendra Satapathy is the Founder Director, Next Level Education

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ECOnOMYsENTImENT

Investors have mixed feelings about the performance of the NDA government on the economic front. While a minority are outright disappointed, the consensus view remains one of cautious optimism veering around to the gradual realization that econ-omy can’t turn around dramatically merely with a

change of political leadership. However there is near unanimity that while its inten-

tions are noble and it is working methodically, time may actually run out on it unless the government gets its act together before the bugle is sounded for the next general elections.

What is the nature of our problems that even a regime with the most resounding mandate in three decades lead by a leader with proven credentials finds challenging to resolve? Is it there-fore fair to assume that the source of our ills are all external and hence beyond our control? Or is it that we manufactured our problems diligently over the past decade creating a quick-sand around us? Is it a combination of both? Is it a perfect storm?

These are some of the many questions that cloud an average in-vestor’s mind today as she grapples to make sense of her equity portfolio.

lies, Damned lies And StatisticsInvestors can vouch for this phrase more than anyone else. Right from the early 20th century when this phrase was popularized by Mark Twain to reflect the potential jugglery of numbers to prove one’s

point, markets have always provided the most fertile ground for bulls and bears to interpret the statistics according to their con-venience.

Currently as the markets oscillate between hope and despair, it is amusing to see various commentators interpret the same set of economic data according to market sentiment. It is there-

The Big SulkIndia is at the threshold of multiple positives. It would be too early draw inferences about the state of the economy By P Phani Sekhar

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ECOnOMYfore natural for an investor to be sceptical of the data points but it doesn’t mean that economic statistics being put out by the government are untrue. It only means that devoid of the contextual understand-ing of the statistics, no meaningful anal-ysis is possible. While there are many economic parameters that have a bearing on investment returns, we will stick to a few data points that are key determinants of all other parameters. Inflation: Historically India always faced

high inflation due to high budget defi-cits. However in the run up to the

enactment of the fiscal responsibil-ity and budget management (FRBM) Act in 2003, NDA gov-ernment under Vajpayee en-sured that inflation was brought under control partly by taking tough measures like regulating small savings and EPFO interest rates and con-trolling budget deficits and largely on the back of benign

commodity prices especially as the world was still reeling under

the recessionary impact of the 2001 terror strikes on the US. Low commodity prices, lower infla-

tion and consequently lower interest rates provided a sweet spot for equity returns.

However, as economic buoyancy in-creased globally with China continu-

ously clocking double digit eco-

nomic growth rates and the subprime build up in the US, inflation started to surge. India had a changed political dispensation whose economic narrative was shaped by a left of the centre ideology that empha-sized redistribution to rural India in the form of higher Minimum Support Prices (MSP), higher food and fertilizer subsidies and a grand farm loan waiver. Globally industrial, energy and agricultural com-modities were steadily rising with all of them hitting a crescendo in 2008.

Crude oil hit the sentimental peak of $150/bbl dealing a crushing blow to oil importers such as India. The period 2004-08 was marked by higher distributions in the form of subsidies, higher economic buoyancy and lower budget deficits. In hindsight, it was a golden period to in-crease productive spending and gradually reduce subsidies as the per capita income had significantly increased. On the con-trary, India increased subsidies even in the face of rising per capita incomes dis-torting the utility curves of a large num-ber of goods and services in the economy

for an average Indian household. As a re-sult of higher subsidies becoming unsus-tainable in the face of rising commodity prices, course correction became essential which posed a grave challenge for balanc-ing the household budget which had ac-quired distorted priorities due to four years of high subsidies. Moreover, India almost tripled its budget deficit in a span of less than two years as a response to the 2008 financial crisis. It was final nail in the coffin as far as multi-year hyper infla-tionary impact was concerned.

Inflation expectations had also set in by then due to the relative prosperity in the countryside which was largely immune to the happenings in global finance. The cu-mulative impact of rising MSP prices for key crops such Wheat and Paddy by a CAGR of 15% for close to 7 years had a devastating impact on the food economy of the country which was marked by per-sistent high inflation for almost 6 years starting 2008. For a country that was ob-sessed on viewing inflation through the prism of Wholesale Price Inflation (WPI), it was a refreshing change in approach brought by Dr. Subbarao in 2010 when he changed the RBI’s inflation goal post from WPI to Consumer Price Inflation (CPI). Dr. Rajan intensified the efforts of his prede-cessor by appointing the Urjit Patel com-mittee which formalized the RBI’s infla-tion target to be CPI.

RBI’s relentless pursuit over the past 5 years on bringing down CPI is singularly responsible for rates to be relatively high-er compared to the previous cycles. While

India almost tripled its budget deficit in a span of less than two years as a

response to the 2008 financial crisis. It was final nail in the coffin as far as

multi-year hyper inflationary impact was

concerned

*CPI: Consumer Price Inflation; CAD: Current Account Deficit; SEB: State Electric Board

Macro Economy Indicators2007 2008 2009 2010 2011 2012 2013 2014 2015

CPI* (Avg) 6.39% 8.32% 10.83% 12.11% 8.87% 9.30% 10.92% 6.37% 6.38%

Real GDP Growth 9.80% 3.90% 8.50% 10.30% 6.60% 4.70% 5.00% 7.17% 7.46%

Trade Deficit (USD mn) 79,211 110,439 122,293 123,871 161,827 192,087 140,913 138,778 48,355

CAD* (USD mn) 11,260 29,050 21,090 54,680 62,503 91,471 49,226 27,379 1,286

Interest Rates (Repo Rate) 7.75 6.50 4.75 6.25 8.50 8.00 7.75 8.00 7.25

INR/USD 41.29 43.42 48.35 45.74 46.67 53.49 58.63 61.03 62.83

Credit growth (Rs bn) 7,335 8,583 10,544 13,115 16,132 19,373 22,302 25,054 -

SEB*'s debt (Rs cr) - - - 58,659 59,235 68,534 67,354 67,956 -

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the WPI that broadly reflects the pricing power of the industry has been negative for many months, CPI has been relatively stubborn. It led to industry and the gov-ernment which always prefer a politi-cally easy solution, looking forward to rates coming down. Since the industry is well organized and speaks collectively through one voice, it often gave the erro-neous impression to the average investor that inflation was low but rates were high. Investors must track the CPI more care-fully than the industry’s commentary on their expectations of inflation to formu-late their opinion on the direction of in-terest rates and quantum of rate cuts. However the CPI is finally coming under control (less than 6%) after the new gov-ernment following in the footsteps of UPA’s final year in power (2013-14), reined in the MSP increases of major agricul-tural crops to lower single digits (3-4%) for two years in a row.

If interest rates are brought down in a hurry without cooling down inflation, it will rise quickly to even higher levels as expectations of price rise will be en-trenched into the psyche of the citizen which will have perilous effects on the health of the economy. A high inflation economy kills all productive capacity over a period of time by slowing down con-sumption and investments, slows down job creation, leads to slowdown in tax col-lection and if unchecked can lead to an implosion in the organized economy.

Therefore it is always prudent to sacrifice growth in order to rein in inflation for long term sustainable benefits.GDP Growth and Corporate Earnings: Investors are often flummoxed to see high GDP growth not translate into better earn-ings for the corporates. The revised GDP estimates indicate that India is very close to attaining 7.5% GDP growth rate but the markets do not reflect that enthusiasm. GDP can loosely be defined as the income of a nation. However comparisons of similar GDP growth rates in two different time periods in isolation without refer-ence to the inflation and inflation trajec-tory can lead to erroneous conclusions. An 8% GDP growth rate in the current context is quite different from that in 2006 as India has been reeling under higher inflation for the last six years leading to slowdown and higher interest rates. On the other hand, India was in a sweet spot in 2006, as the GDP growth was accelerat-ing on the back of benign inflation and a rising per capita income that lead to higher consumption. Corporate balance sheets were deleveraging as availability of equity capital had increased. However

today, corporate balance sheets are more leveraged and animal spirits which were reminiscent of the last decade are miss-ing. Therefore an 8% GDP growth rate will be more sedate and subdued as it will take a while for the wealth effect to take shape. Therefore corporate earnings are not really reflective of any upswing in the GDP growth as their sales have been af-fected due to a slowdown while the mar-gins have been impacted by the loss of pricing power.

Higher interest rates have sucked up any remaining profitability leading to subdued returns for equity shareholders.

Is There A Silver lining?While it is clear that comparable data for inflation and GDP growth is within the historical favourable band, the results in terms of better corporate earnings growth will be evident with a lag. Com-modities are at multi-year lows which is a huge positive for India. Government recognizes that private balance sheets are distressed and hence plans to kick start the investment cycle through public spending. April 2015 witnessed 9% of the annual budget being spent which is among the highest spends in the first month of the fiscal in many decades. Road sector was one of the biggest beneficiary with 14% of the annual allocations being spent while the rural development minis-try spent 24% of its annual budget in April 2015. Such front loading of public spending heralds good news for the pick-up in the investment cycle. As inflation subsides and interest rates reduce, con-sumption would also gather steam as dis-posable income increases. The real accel-eration in economic revival would be witnessed as the investment and the con-sumption themes start firing on the back of lower inflation. Business sentiment and confidence would improve as the ca-pacity utilization improves.

India is at the threshold of multiple positives and hence it would be too early draw inferences about the state of the economy. The building blocks are being put in place and investors would do well to read the tea leaves of change. F

ECOnOMY

Higher interest rates have sucked up any remaining

profitability leading to subdued returns for equity

shareholders

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33July 2015 l The Finapolis

The authors are leading financial advisors. Write to them at [email protected]

The idea of many investors is to pay tax

and take the remaining funds to greener

pastures. Therefore we thought it could also be interesting to see how

green the pasture should exactly be

expert speak

an Shanbhag and Sandeep Shanbhag

One of the ways of saving tax on long-term capital gains is by in-vesting in the bonds issued by

NHAI or REC. This deduction is under Sec. 54EC of the Income Tax Act. The maximum limit for such investment in any financial year is Rs 50 lakh. Since the main function of these bonds is the tax deduction, the interest rate on offer is a modest 6% p.a.

It is on account of this low interest rate that many investors opt to pay the entire amount of tax and invest the balance in shares or quality equity funds. Their rea-soning is on the following lines --- while it is true that investing in the bonds could save them tax, the bonds per se offer very little -- that too fully taxable. Plus the amount is locked in for three years. Wouldn’t it be a better option, to pay the tax and earn good returns with the re-maining amount?

To find out, we decided to run through some calculations. The analysis threw up some fascinating results to share with our readers.

The AnalysisHere’s what we found. If you are lucky enough to have earned long-term capital gains, the Sec. 54EC bonds is one of the best investments you can opt. Despite the fact that return is low, the interest is taxable and it has a three year lock-in.

Examine the following table. We assume that the asset has been sold on 31st July 2012. The rest is self-explanatory.

Date Particulars Rs (Pre-tax)

Rs (Post-tax)

Amount of long-term capital gains 100 100

Tax Saved on account of investment 20 20

31st July 12 Net effective amount invested in the bonds

80 80

31st July 13 Interest earned for the first year 6.00 4.20

31st July 14 Interest earned for the second year 6.00 4.20

31st July 15 Interest earned for the third year 6.00 4.20

31st July 15 Maturity amount 100 100

Equivalent Rate of Returns 14.70% 12.60%

(Tax rate assumed to be 30%, surcharge & cess has been ignored for simplicity)

The key thing is that on account of the tax saving, the bonds effectively offer the investor an up-front 20% discount. It is like investing Rs 80 but earning a return on Rs 100. Also the 20% gets spread over just three years which is the lock-in pe-riod of the bonds.

For example, in the table, say the inves-tor has earned a capital gain of Rs 100. Effectively he will end up investing Rs 80 in the bonds as he saves a tax of Rs 20. At the rate of 6%, he earns Rs 6 every year and at the end of three years, he gets his original investment back.

The net equivalent return works out to an eye popping 12.60% p.a after tax! And if the investor does not have other taxable income, the return climbs to 14.70% p.a!

Any which way you look at it, investing in these bonds is like getting to save tax and also get paid for it!! One should be crazy not to go for it.

As discussed earlier, the idea of many investors is to pay tax and take the remain-ing funds to greener pastures. Therefore we thought it could also be interesting to see how green the pasture should exactly be.

Lets say one were to invest Rs one lakh in the market. At the rate of 14.70% p.a over three years the money should grow to around Rs 151,000 i.e. almost 50% more. And this is just to break even. After that the investor will actually start making any money.

Sec. 54EC: Rs 50 lakh limitLast but not the least, it may be noted that these Sec. 54EC bonds may be used to save tax on any long-term capital gain and not necessarily only from sale of property. For example, apart from property, sale of say non-equity mutual funds, bonds, deben-tures, gold, jewellery or even gold ETFs etc. may result in long-term capital gains. These gains can be saved from taxes by investing the amount in the 54EC bonds as discussed.

There is only one drawback to these bonds i.e. the maximum investment in any one financial year is capped at Rs 50 lakh. While by no means a small amount, how-ever, the way property prices have spiraled, some investors found it was not enough to cover the entire amount of capital gains.

However, some smart investors found a loophole in Sec. 54EC and they took an advantage for investments in such bonds. Remember, one has six months to invest in the bonds from the time of earning the capital gain. So for instance if an investor needs a tax cover of more than Rs 50 lakh. Then he would time the sale for transac-tion between December and March of any year. In this way, the six month period overlapped two financial years which would in turn enable him (investor) to double the investible amount to Rs 1 crore. However, budget 2014 has plugged this loophole and now a maximum of Rs 50 lakh only may be invested for any transaction. F

54eC bonds: Use These optimally

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FACE TO FACE

DWS Alpha Equity Fund, the flagship fund of Deutsche Asset Management India, is amongst the top decile large cap equity funds today. In the last one year, the fund outperformed the benchmark CNX Nifty by over 16%.

Akash Singhania, the fund’s manager since December 2012 and Head-Equity, Deutsche Asset Management India, is a PGDM from IIM Lucknow, Chartered Accountant and Company Secretary. He speaks to The Finapolis about his investment strategy and market outlook.

‘Corporate Earnings Will Accelerate Soon’

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FACE TO FACEJust when retail investors seemed to be warm-ing up to mutual funds after a very long time, there comes a massive correction in the stock markets. Do you think this would spook them once again?

Akash Singhania: The mutual fund in-dustry has seen inflows in January-De-cember 2014 after a long time. We believe that India’s macro-indicators have im-proved and growth is picking up. We are in a phase of benign market returns for the next three to five years. Running cor-rections during such a phase cannot be ruled out. However, these market correc-tions are more of an opportunity for potential investors to increase their over-all exposure to equity at attractive valu-ations. We do not see a further correction of more than 5-10% in the markets from current levels and view any running cor-rection as a buying opportunity.

How would you describe your investment phi-losophy?AS: DWS Alpha Equity Fund, a large cap equity fund has an Information Ratio of approximately 4 as per rolling one year return data from Bloomberg as on April 15, 2015. Higher Information Ratio (IR) reflects efficiency and consistency of out-performance with lower risk and inter-nationally IR above 1 is considered as excellent. The fund has out-performed the benchmark CNX Nifty in each of the 13 months from April 2014 to April 2015. Besides this, the fund is a top decile in 1 year, 2 year and 3 year performance as on 30 April 2015. Similarly for the period March 2014-2015, March 2013-2014, March 2012-2013 and since inception the fund has outperformed its benchmark.

This consistent performance of the fund emanates from our investment phi-losophy. Our investment philosophy is a fundamental led approach to investing with quality and growth being its key drivers. We believe high quality com-panies deliver sustainable returns to investors which are superior on a risk adjusted basis and with lower volatility and deviations.

Over time, emphasis on quality is in-

creasing and an argument for growth at relative value (GARV) is gaining over growth at reasonable price (GARP). It’s natural that quality does not come cheap. Hence, valuations should be looked at relatively with a different perspective. For example, valuation of a quality stock should be relative to the valuation of the sector (and not the Nifty) and also rela-tive to the premium / discount to Nifty which it has traded empirically rather than the Nifty itself. This comparative and relative valuation differentiates long term winners from value-traps. We also have an internal framework of Disci-pline, Environment, Fairness and Trans-parency (DEFT) analysis where we evaluate companies from a corporate governance perspective. We use this analysis for identifying high quality companies for bottom-up stock picking.

There have been mixed messages from global fund managers and investors about India’s macros. Jim Rogers was scathing in his ap-praisal of the Modi government. Your Emerging Markets Head, Sean Taylor however recently suggested that there’s still plenty of faith in the Indian fundamentals. What’s your view?

AS: We believe that India’s macro has improved significantly in the last two years as the following indicators reveal:1) There is strong political stability

backed by a majority government, which facilitates passage of reforms. In the past few years we have seen multiple reforms including petrol and diesel price deregulation; increasing foreign direct investment limits in

defense, insurance, railways and con-struction; amendment of mines and mineral auction procedures including coal block auctions.

2) GDP growth bottomed out in FY13 at 4.5% and since then growth has picked up and is expected to be at 7% levels this year.

3) Fiscal deficit and current account deficit has improved significantly from the levels we saw in 2013.

4) Wholesale price and consumer price inflation are at multi –year lows.

5) Interest rates have fallen by 50 basis points so far in period Jan-April 2015 and there is room for further cut dur-ing the course of the year.

6) Oil prices are significantly down from the levels we saw in period Jan-Mar 2014 and India being a net importer of oil, benefits from decline in oil prices.

Should investors treat this as a good time to stock up? AS: With the improvement in macro and acceleration in earnings growth, this is a good time for investors to add exposure to equities. We expect corporate earn-ings growth to accelerate. Various profit-ability indicators of corporate perfor-mance stand at a 10 year low. Sales growth, EBITDA growth, EBITDA mar-gins – all are near their 10 year lows.

Corporate PAT to GDP again is near 10 year lows. We expect these to pick up with recovery in economic growth. Also, corporate earnings tend to grow faster when interest rates are cut and growth recovers. Quarterly earnings could be volatile but on an annualized basis cor-porate earnings should grow in double digits for the coming three to five years. Valuations in this context are reasonable at around 16x one year forward earnings which are near to long term average of our markets.

From a fund flow perspective, Indian markets have seen more than $15 billion inflows from foreign institutional inves-tors in each of the last three calendar years. Indian markets have been an at-tractive investment destination buoyed

These market corrections are more

of an opportunity for potential

investors to increase their overall

exposure to equity at attractive valuations

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by improving macro and recovery in growth on an absolute basis as well as on relative basis compared to other emerg-ing markets. We remain sanguine on domestic growth prospects and believe that India will remain an attractive des-tination for foreign investors. Investors should use current market correction to invest with a medium to long term invest-ment horizon.

Retails investors often find that making large cap stock buying decisions easier. They are in the spotlight more often, they are in the news, they are analysed frequently in the media and there is more research on them. What are the things to look for and consider while picking medium or small cap stocks.

AS: Large cap stocks are more researched compared to mid and small cap stocks. Conversely mid and small cap stocks have greater dispersion and volatility in returns. Therefore it is essential to be selective in bottom-up stock picking in mid and small cap space.

A few parameters which need to be thoroughly analyzed are: business mod-el including the industry environment, entry barriers and competitive landscape and company fundamentals in terms of its business and financial strength in-cluding return ratios, leverage and cash flows. Background of the promoter, his past track record, quality and delivery of top management team and corporate governance practices play an integral role in selecting mid and small cap com-panies. Valuations, ownership and li-quidity should also be seen before mak-ing the final selection.

Retail investors find it difficult to recognise per-manent and temporary loss of capital. It leads them to make poor decisions. How should they identify the two and deal with them? AS: Investment decisions are normally based on the return expectations, risk appetite, time horizon, asset allocation and liquidity requirements of the inves-tors. Equity investments come with some volatility and a risk of temporary or permanent loss of capital.

Investors should recognize that high quality large cap companies or market leaders have robust fundamentals with sustainable models that do well across business cycles. Investing in these com-panies would normally not lead to per-manent loss of capital if the holding period is long-term. However investors may find it difficult to identify and mon-itor quality stocks over the long term and should therefore consider the investment expertise of mutual fund managers who are more adept at recognizing temporary loss over permanent loss of capital and are better equipped to take decisions to alleviate loss of capital.

What is your outlook for new FY 2015-16?AS: The outlook for the current year is positive. Various macro-economic vari-ables like growth, inflation, interest rates, fiscal and current account deficit, oil prices and currency are still benign and lead to a conducive background for market performance. We expect earnings growth to accelerate and business mo-mentum to pick up. Markets have cor-rected a bit and valuations are again reasonable. The risks to the Indian mar-kets are sharp rise in oil prices and vola-tility in global markets based on global events like Fed rate hike or global risk aversion. While there could be volatility in the near term, we expect markets to

deliver double digit returns in the me-dium to long term.

What are the triggers that you are looking for-ward to with regard to the markets? AS: Triggers for the markets include progress on reforms including the pas-sage of GST Bill, rationalization and simplification of tax laws, earnings growth for the March and subsequent quarters, trajectory of inflation and monetary easing by the RBI, extent and distribution of monsoon. Higher oil prices and start of Fed rate hike are two global factors which can cause volatility in the Indian markets.

Are there any particular sectors investors should be betting on? AS: Sector preferences might change with changing fundamentals and valua-tions. However, from a three to five year perspective, we are positive on private financials, automobiles and selective industrials. These sectors will benefit from pick-up in demand, operating lever-age and lower interest costs as well as oil prices. We think consumption and phar-ma sectors still have longer term secular demand drivers in place and are poised to do well in the long term.

Most diversified large cap funds are heavy on Banking and the technology sector which make up almost half of the portfolio. The banking sector’s health in particular has been a subject of debate recently. What makes you bullish?AS: Banking and software sector put together, roughly comprise half of the Nifty weight. Hence, funds bench-marked to Nifty normally have a size-able weight in these two sectors. We are positive on private banks. Private banks have grown faster than the industry by gaining market share, are well diversi-fied, have sizeable retail presence, have achieved profitable growth keeping as-set quality in check and have also man-aged to raise capital effectively from the markets to fund their growth plans. We expect them to continue to deliver on loan and earnings growth with con-tained asset quality risks. F

FACE TO FACEFrom a three to five

year perspective, we are positive on private financials, automobiles and

selective industrials. These

sectors will benefit from pick-up in

demand, operating leverage and lower

interest costs as well as oil prices

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adhil SheTTy

As home loan interest rates con-tinue to drop, more investors are now eyeing real estate invest-

ments. Moreover, real estate prices too seem to be more stable and affordable when compared to a few years back, presenting an additional incentive especially to those who are planning to buy their first home. Given this, it is a fact that not everyone who approaches a bank gets approval for the desired loan amount. You might have a good credit history, no other liabilities and a long service period, but still if you are not able to get the loan amount you wish, here are five tips that may help you.1: Club incomes: If both husband and wife are working, there is a good case to com-bine their incomes together while seeking a home loan. But if you have already clubbed the income of your spouse, and are still not eligible for the desired loan amount, you have an option to add more co-applicants.

For example, let us assume Rahul and his wife earn Rs 60,000 a month as their com-bined income. Their maximum loan eligibil-ity for 20 years is around Rs 30 lakh. In case he requires Rs 40 lakh as loan, Rahul can combine the income of his 60-year-old fa-ther who earns a monthly pension of Rs 40,000, to be eligible for the required loan amount.

So apart from your spouse, you can make your parents (if they are working or earning pension) or children (if they are employed) as co-applicants. In many cases, you can also make your siblings as guarantors to enhance your loan eligibil-ity, but under special conditions.2: Buy from a reputed builder approved by the bank: Aishwarya’s problem was different. Being a single parent, she ran the family and was left with little savings. How-ever, buying a house of her own was her first goal, as she could not afford the high rent in the city. The property she shortlist-ed cost around Rs 36 lakh. As banks usu-ally fund up to 85% of the property value,

she was eligible only for Rs 30 lakh as loan. But, she was able to raise only Rs 4 lakh as down payment and wanted at least Rs 32 lakh as loan. Luckily, the project she chose was an approved one and the builder had a good relationship with the bank. The bank accepted her request to consider a higher loan-to-value ratio (LTV).

Banks usually consider 85% LTV for loans. But if it is an approved project by the bank, or if they have a good relation-ship with the builder, they can consider up to 90% LTV. 3: Seek a higher tenure home loan: Since home loan eligibility is calculated depend-ing on the monthly repayment capacity of the individual, the higher the tenure, the smaller is the EMI. This effectively means that increasing the tenure of the home loan can increase your home loan eligibility.

As an instance, in Rahul’s case above, if he is taking his and his spouse’s income only and applies for a loan for 15 years, his eligibility would be Rs 28 lakh. For 20 years, it is Rs 31 lakh and for 25 years, its Rs 33 lakh. If he has 30 year service left, he can go a for 30 years tenure and get Rs 34 lakh

(given the loan is at 10% interest rate and the fixed obligations to income ratio (FOIR) is taken at 50%). Taking a longer tenure however has a downside. A longer tenure means paying an extra interest, and there-by increasing the total cost of the loan.4: Consider pension: Banks often worry about the repayment of their loan when approving loans. So they offer loans only as long as you are in your service. But, if you are a government employee, or having pension, you can request the bank to con-sider your pension too and increase your loan tenure to avail more.

Suppose you are eligible for 10 years loan only as per your remaining service period. You can ask the bank to consider 20 years tenure, considering your pension too. Doubling the tenure means double the eligible loan amount. 5: Offer life insurance as collateral: The eligibility for home loan can be increased if one provides collateral in the form of life insurance policy. Offering life insur-ance policy as collateral safeguards the bank’s financial interest.

While some banks consider loan against life insurance policies as separate loans, some others take it as collateral along with the existing home loan and enhance your loan eligibility. For instance, assume that you have a life insurance with Rs 50 lakh as sum assured, and you have been servicing it for the last five years. Banks would consider this as collateral. How-ever unlike a separate loan against life insurance, deciding the eligibility based on the life insurance policy is completely up to the credit manager of the branch.

While some banks consider a certain percentage of the sum assured, some banks take a certain percentage of the total premium paid. However, to consider a policy, most banks would consider it only if it is at least above 3-5 years old and paid promptly. Also banks are reluctant to consider policies of private insurance companies. F

5 Ways to increase your home loan Chances

Adhil Shetty is the CEO of BankBazaar.com

Banks often worry about the repayment of their loan when approving loans. So

they offer loans only as long as you are in your service

by invite

Page 38: Financial Planning Lessons Financial Planning Lessons

InSuRAnCEDIsasTEr alErT

Over the past months,there has been an increased focus on the consumption of alcohol and its resultant actions which have re-sulted in most instances resulted in the loss of lives and proper-

ties. The most recent high profile case was that of a young woman coprorate lawyer in Mumbai allegedly mowing down two people while driving at an exces-sively high speed, in the wrong lane, after a late night alcohol binge.

Speaking about alco-hol, William Shake-speare said that “ It provokes the desire,

but it takes away the performance”. It’s so very true and it is exactly for this rea-son that alcohol has been in the news – although for all the wrong reasons!

Alcohol is wrongly thought to be a ‘stimulant’ as it gives people a feeling of confidence and fearlessness. However, on the contrary alcohol is in fact a ‘depres-sant’, which slows down the actions of the central nervous system of the body. The mistaken feeling of confidence or

fearless after one consumes alcohol, is because the alcohol impacts the brain’s ‘warning system’ which helps in monitor-ing the behaviour.

Insurance has been defined as a means of protecting financial losses arising out of unforeseen events / accidents. It is very clear that for insurance to be applicable the loss should arise out of an fortuitous event beyond the control of the individu-als. However, consumption of alcohol impedes rational action. In almost all

types of insurance covers it is a requirement to specifically de-

clare the fact if one is a regu-lar consumer of alcohol.

Alcohol and Insurance: There’s No Such CocktailAccident, and death occuring due to drunken driving virtually nullifies the benefits of your insurance investments for your family By Vijaykumar Madhira

38 The Finapolis l July 2015

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InSuRAnCE

Alcohol And Vehicle Insurance Driving under the influence of alcohol is a serious offence as it could result in loss of life – either of the alcohol consumer or of a third party. Drunken driving is one of the main reasons for vehicle accidents and is among the biggest life-takers on Indian roads.

As the quantity of alcohol in the blood-stream rises, the brain is affected, and one’s sense of judgment is skewed. At higher levels of intoxication, there are muscle control problems, blurred vision, and finally, a complete loss of physical co-ordination facilities. In India the permis-sible blood alcohol limit while driving light motor vehicle is 30mg for 100mg of blood.

Given these facts, driving, even with low alcohol levels can be very dangerous.

In the event of an accident arising out of alcohol consumption, the law deals with offenders with great severity and punishments that range from a fine and/or imprisonment up to 6 months and the suspension of the driving license for at least six months.

In our country, in case of claims pre-ferred by the affected third party, the claim will have to be paid by the insurer despite the driver being under the influ-ence of alcohol. However, the courts re-serve the right to decide who shall pay the damages - whether the owner of the ve-hicle or the insurance company and in all probability it could be the owner rather than the insurance company who will have to bear the payment. When it comes to the damage to the vehicle itself, this will not be payable by the insurance com-pany as the damage occurred due to ac-tions of the driver, who was drunk.

Drink, drunk, drive, dead.

Alcohol and Health InsuranceOne of the important questions that an insurer asks is about the consumption of alcohol and it is imperative to be honest and disclose all material facts so as to avoid confusions and hardships later. Quite a few insurers would either deny coverage for those who consume alcohol

or have an extra charge for those who have discontinued the consumption in the past.

It has been proven that alcohol consump-tion raises the risk of diseases arising out of changing “lifestyles” such as diabetes, kidney failure, cardiac arrests and strokes. Insurance companies consider people who consume alcohol as high-risk individuals and are therefore increasingly refusing to extend insurance coverage or are denying claims arising due to consumption of al-cohol and intoxicating drinks.

Alcohol and life InsuranceWhile health insurance policies have cer-tain exclusions which are clearly men-tioned in the policy, life insurance policies

do not have any such exclusions. So as to ensure that there is no ambiguity or con-fusion to the nominees / family members it is prudent if the individual spells out very clearly all material fact that may have a bearing on the insurance cover.

Addictions to either tobacco or any other intoxicant (alcohol included) have an adverse impact on the health of the individual. With this in mind, the insurer may decide to deny the insurance coverage or choose to load / increase the premium chargeable based upon the health reports and facts of the case. The period of addic-tion has a bearing on the case and even when one quits the insurer may consider the case on merits and at their discretion. This is because the effects of the addiction take a great deal of time to go away.

As can be seen from the above summa-tion, the relationship between alcohol and insurance is one of “constant denial”. Insurance refuses to accept / recognise the consumption of alcohol and will in most instances refuse to pay for any loss / expense incurred due to the consump-tion of alcohol.

As Ralph Waldo Emerson said ‘There is this to be said in favor of drinking, that it takes the drunkard first out of society, then out of the world’. F

Insurance companies consider people who

consume alcohol as high-risk individuals and are therefore increasingly

refusing to extend insurance coverage or are denying claims arising due to consumption of alcohol

and intoxicating drinks

39July 2015 l The Finapolis

Page 40: Financial Planning Lessons Financial Planning Lessons

EquITYNumbEr GamE

Our team of analysts pore through technical charts to offer some smart trading tips for the next cou-ple of month By Team Finapolis

Technical Analysis

India’s largest fast moving consumer goods (FMCG) firm Hindustan Unilever (HUL) surged over 6% during the month

of June on back of strong volumes. The stock has given a breakout from the medium term downtrend line joining Rs 980 and Rs 865 lev-els. Previously, the stock saw profit taking from its life time highs of Rs 980 levels tested during the second week of March this year. Among indicators, moving average conver-gence divergence (MACD), a trend-following

momentum indicator that shows the relation-ship between two moving averages of prices, is in positive zone indicating momentum to be on upside. We expect the stock to continue its uptrend by making fresh life time highs in near term and thus, one can accumulate the stock on decline for targets of Rs 980 and higher in the near term.Points of Observation

From a sectoral perspective, while FMCG index stayed flat, stock rallied sharply in

Current Market price Rs 891Stop loss Rs 855Target price 1 Rs 980Target price 2 Rs 1000

month of January gaining by more than 30%. From a valuations perspective, stock is trading at high price earning (PE) multiples compared to its peers due to expected high earnings growth on re-vival in sales volumes and improved margin outlook. On the daily charts, the stock is trad-ing above all its short term and long term moving averages, indicating the bullishness in the counter and any dip towards the moving averages can be used as buying opportunity. The stock has seen fresh accumula-tion in last couple of sessions with bouncing back strongly from 200 day moving average. The stock has imme-diate strong support placed at Rs 855-860 levels and the uptrend is expected to continue in the stock till its stays above these levels. Among oscillators, the 14-day RSI line is trading above the signal line point-ing northwards indicating the strength in the counter.

580

660

740

820

900

980

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

40 The Finapolis l July 2015

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EquITY

United Breweries emerged out of de-merger of the beer business from the erstwhile United Breweries, which

was then renamed United Breweries Hold-ings. United Breweries has an association with brewing over the last five decades and commands a market share of over 50%. The company`s principle activities are to develop, market and export alcoholic beverages, leath-er footwear, pharmaceutical products, agro-chemicals and processed foods. The company markets beer under the Kingfisher brand.

The stock is in secular up trend forming higher highs and higher lows on monthly charts. After making life time high of Rs 1226 the stock went into cyclical correction mode which provides an opportunity to the inves-tors with medium term perspective. Cur-rently the stock is consolidating just above its previous breakout trend line which is currently pegged at Rs 840 levels; it also co-incides with earlier highs where prices have resisted previously twice, are now becoming supports as per the principle of polarity. The support zone is between Rs 927-800.

Current Market price Rs 894Stop loss Rs 780Target price 1 Rs 1140

Current Market price Rs 753.65Stop loss Rs 680Target price 1 Rs 860Target price 2 Rs 870

The stock has seen fresh accumulation in the last 5-6 trading sessions indicating steep rise in price backed with higher vol-umes. The stock has a strong support at around Rs 718 levels and is likely to head towards its Rs 860-870 levels, where it is likely to face some resistance. Among oscillators, the 14-day RSI line is about to give a breakout and cut the signal line from below and likely to continue to head northwards.

Asian Paints is a market leader in the dec-orative paints segment and derives 85% of revenues from this segment. The company has 57% market share in decorative paints. The company’s earnings trajectory could see an uptick as raw material costs are down, thanks to the fall in crude oil prices, as it is a major raw material constituent to the company and any further decline in its prices will add more fuel to it.

635

745

855

965

1075

1185

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

485

570

655

740

825

910

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

Points of Observation

On the daily charts, the stock is trad-ing above all its long term moving average; 200 days SMA which is cur-rently pegged at Rs 877, indicating that the long term up trend is still intact in this counter and the cyclical cor-rection is nearing ending. The stock has seen fresh accumula-tion in last couple session indicated which is evidenced by increase in vol-ume and just above its 200 days SMA. According to Elliot Wave Principle the correction from the highs of 1226 is W-X-Y corrective pattern and appears to have completed at the lows of Rs 851.4. On weekly charts the stock has found support above its lower Weekly Bol-linger band. Among oscillators, on daily charts the 14-day RSI line is trading above the signal line pointing northwards and the MACD has shown a diver-gence with price indicating that bears have lost the momentum on the down side.

Asian Paints has slipped almost 25% when it fell from the highs of Rs 922.5 towards Rs 693 levels.

The stock made a panic low of Rs 693 dur-ing the last week and bounced back on the same day to give a closing at around Rs 705 levels. Since then the stock has gained more than 8% from the recent lows in the last 6-7 trading sessions. It seems that the stock has bottomed out and is well set to head higher. In the re-cent rally the stock has moved higher with spur in volumes. This also indicates that the value based buying has been seen in the stock. The stock is expected to con-solidate near its current levels and this can be used as a good buying opportu-nity for short to medium term investors before it heads towards its recent highs.Points of Observation

On the daily charts, the stock is trad-ing above its 21-DEMA and 200-DEMA, indicating that the stock is reversing its downtrend and is likely to head towards Rs 860-870 levels in the short to medium term.

41July 2015 l The Finapolis

Page 42: Financial Planning Lessons Financial Planning Lessons

EquITY

L&T is India’s largest and most re-spected engineering and construction company. The company is well posi-

tioned to benefit from economic recovery and it remains best proxy for Indian infrastruc-ture development story, given its strong busi-ness model, strong execution capabilities and healthy balance sheet.

The company announced that it will list its IT services unit L&T Infotech by Decem-ber, this year. And company will also be look-ing at listing of other businesses, including

its hydrocarbons and transmission and dis-tribution units over the next few years.

Recently L&T Hydrocarbon Engineering, the subsidiary of Larsen & Toubro, has bagged an offshore contract for the Bassein Development project from ONGC valued at Rs 2,715 crore.

In the beginning of March 2015, the stock made a life time high of Rs 1893.8, post which it witnessed round of profit booking, and prices dropped towards its 200-DEMA where fall got arrested and prices rebounded; nota-bly in last one and half year time frame stock

The stock is in a structural up trend since August 2013 and posted all time high of Rs 76.95 levels. There-

after, the profit taking from those levels has dragged the stock to the low of Rs 63.8 levels in small time frame two weeks. However the stock resumed its up move towards Rs 75.5 levels with minor corrections, where the disappointed Q4 numbers has increase the supply in the stock which dragged the stock to its support of Rs 65-65.5 levels. Where the Q4 results has seen fall in net profit by 36% to Rs 230 crore, and the total

Current Market price Rs 69.75Stop loss Rs 59Target price 1 Rs 84Target price 2 Rs 87

485

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910

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28

38

48

58

68

78

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

has well respected its long term moving average and every time stock rebounded after testing the average.Points of Observation

The stock is maintaining a series of higher peaks and troughs on weekly charts and well poised above its short to medium term moving averages, exhibiting underlying strength in the counter. On the technical setup momentum oscillator 14-period RSI is reaffirming an underlying bullish tone, as oscilla-tor managed to hold above 40-level during price correction, and current-ly it is inching higher in sync with price. From the above observation, techni-cally stock has a potential to surge higher in an uncharted territory in the coming months. Hence, one may buy stock at current levels and aver-age the stock price on any dip towards Rs 1550-1560 levels keeping a stop loss below Rs 1390 levels, for an upside tar-get of Rs 1900 and Rs 2050-2080 levels over next 12-15 months time frame.

sells jump by 43% to 8435 units for April 2015 against 5897 units in the same month last year. Points of Observation

The recent price action has observed bounce from 100 DEMA thrice in last two month which reflects the said mov-ing average will act as a strong support for the stock in near term. Currently the stock is trading in the consolidation range of Rs 65-75 levels. The move above the said consolidation range will be a fresh trigger for the stock which can place the stock to the new high in near term. The move from the low of Rs 64 levels has seen notable deliverable quantity with trade quan-

tity suggest strong hands are accumu-lating the stock at higher levels. Tech-nically the stock is on the verge of giving positive crossover of RSI on weekly charts and Parabolic SAR has maintained its buy signal suggest up-trend in the stock will remain intact in the near term. During the year, company has gener-ated a cash surplus of Rs 2000 crore aided by positive accruals, QIP, sale of noncore assets and reduction in work-ing capital which all resulted as reduc-tion of debt. Hence, investors could buy the stock keeping a stop loss of Rs 59 levels for the target of Rs 84-87 levels in the next 5-6 months. F

Current Market price Rs 1753.25Stop loss Rs 1390Target price 1 Rs 1900Target price 2 Rs 2050

42 The Finapolis l July 2015

Page 43: Financial Planning Lessons Financial Planning Lessons

by inviteYASHISH DAHIYA

A comprehensive motor insurance policy secures your vehicle against natural and man-made

calamities, including acts of terrorism, road rage etc. In contrast to this, the man-datory third-party car insurance covers the insured’s legal liability for death/disability towards a third-party and/or property damage caused to them.

As comprehensive insurance plan is optional, a lot of people do not buy one. However, if you don’t have one, you won’t be able to get any compensation in case of a car wreck. Therefore, I always recom-mend people to buy a comprehensive insurance plan for their car to cover all security aspects. Let’s have a look at a few scenarios when you should opt for a com-prehensive coverage in your motor insur-ance policy.

When The loan Term Is Over And You Own The Vehicle At the time of signing loan papers, banks ask for your consent to protect the vehicle against physical damage via comprehen-sive coverage. But once the loan has been repaid, you are no longer obligated to buy a comprehensive cover. However, it’s nec-essary under law to at least insure your vehicle under third-party cover. Sample this: You might be the best driver around, but there will be always certain situations that would be beyond your control, as in the case of natural calamities or a drunk driver hitting your car that can wreck your vehicle. To be prepared for these situations, it is imperative for you to buy and continue with a comprehensive mo-tor insurance cover.

When The Replacement Cost Is less Than Insured Declared Value (IDV)Till the replacement cost of your old ve-hicle is less than its IDV value, you must never drop the comprehensive cover. In fact, you should never, since a compre-hensive coverage provides multiple ben-

efits and secures your vehicle against unforeseen events. For instance, your old car may be worth Rs 150,000, but if it would cost Rs 100,000 to replace the car it doesn’t make sense to drop a comprehen-sive cover. In case of an unexpected event, you will be losing out money in such a scenario.

When You Don’t Have Enough Funds To Repair A CarThe rationale behind opting for a com-prehensive cover is to provision for un-foreseen circumstances that may damage your vehicle. Imagine a situation where-in your car gets damaged owing to thun-derstorm or earthquake. Would you be able to pay upfront, out of your own pocket? If so, then you can do without a comprehensive cover.

Even If Your Vehicle Just Sits In The GarageIf you rarely take your car out for a spin and usually keep it in the garage, then you can avoid buying a comprehensive cover. However, on those rare occasions when you do take your car out, you cannot rule out chances of someone else damag-

ing your car. Therefore, think again be-fore removing the cover.

When You Are Selling The CarYou may not require a comprehensive motor cover if you are planning to sell your car in the immediate term or in case you rarely take your car out for a spin. Under such scenario, your manda-tory third-party insurance will be enough. Of course, be wary of the fact that you cannot rule out chances of someone else damaging your car on those rare occasions when you do take your car out.

Don’t Give up On Comprehensive Cover Just Yet! The importance of having motor insur-ance cannot be stressed enough. It is not just mandatory by law, but also safe-guards your economic interests, espe-cially during natural or man-made catas-trophes. As true as it may be, most of us do not really bother about buying or re-newing our motor insurance policy. In fact, recent IRDA report states that near-ly 75% of vehicles on Indian roads are either not insured or their insurance had already lapsed. Quite a disturbing revela-tion, must say!

It’s more sensible to pay extra premium than worry about how you would replace your damaged vehicle or pay for its re-pairs later on. F

Why you Should opt For a Comprehensive motor policy

The rationale behind opting for a comprehensive cover is to provision for unforeseen

circumstances that may damage your vehicle

The author is the CEO & co-founder, Policybazaar.com

43July 2015 l The Finapolis

Page 44: Financial Planning Lessons Financial Planning Lessons

44 The Finapolis l July 2015

In Nestlé’s most terrible moment of crisis in India, it’s not hard to miss the country’s media tucking into the schadenfreude like hungry hostel mates a late-night bowl of Maggi. Ask

any business journalist about the hardest companies in India to deal with, and Nestlé would surely figure very high on the list. Until some years ago (and on cur-rent evidence, it would hold true even today) the obduracy of Nestlé in parting with information or stonewalling was the stuff of legends. The joke among journal-ists was that heading Nestlé’s PR was the easiest job in the world. You just had to say “no” to any information request with-out even opening the journalist’s email.

In the days when snazzy corporate web-sites hadn’t been built, journalists were pretty much at the mercy of companies to secure even the most banal piece of factual information about them. The smarter, and more seasoned in the habit of meticulously collecting annual reports of companies they tracked, consequently, had an exalted status in the newsroom.

It was during such times that a journal-ist friend was handed the unenviable task of filing a smallish piece on Nestlé. All he asked the company for in the process was some extremely trivial information on the number of employees, some in-dicative figures about their retail pres-ence, or something on those lines. As expected, when no help came forth, the deadline and editors breathing down his neck, the reporter did what they usually

do—tell the company that they’re going ahead with the story regardless (only in more colourful language). A paranoid Nestlé representative camped inside the media organisation’s office, strategically after the editors had left, to bully the re-porter out of the story. The young report-er by then had lost his patience and a bit more. As an act of revenge he offered the

esteemed guest a foamy cup of vending machine coffee generously flavoured with foreign substances far less harmful than lead or monosodium glutamate (MSG).

Nestlé’s handling of the Maggi Noodles crisis ever since it broke last month with Maggi samples in Lucknow reported to have tested positive for lead and MSG, seems to follow the same time tested path.

Maggi Fiasco: How Not To Handle a Pr crisisThe Swiss firm Nestle’s track record of opacity in dealing with the media, a history of similar adulteration charges in Africa makes winning back consumer trust very hard By TR Vivek

Ask any business journalist about the hardest companies in India to deal with, and Nestlé would surely figure

very high on the list

CORpORATEImaGE

Page 45: Financial Planning Lessons Financial Planning Lessons

45July 2015 l The Finapolis

Before its worldwide Chief Executive Officer (CEO), Paul Bulcke addressed a news conference in Delhi and announced a voluntary recall of Maggi Noodles from shop shelves across India, Nestlé’s re-sponse had ranged from outright denial of any problem at first to putting out clunky PDF files of “independent” lab test results of Maggi on its website to bickering with regulators on technicali-ties such as whether Maggi Noodles was subjected to lab tests raw or cooked. Ulti-mately, it had to resort to some very ex-pensive damage control by destroying the entire inventory of the 2-minute noodles estimated to be worth some Rs 300 crore.

Similar problems have dogged Nestle soon after the Maggi fiasco. There have been reports about larvae and beetles be-ing found in the packets of its infant food brands NAN and Cerelac. The company’s shares have taken a pounding and it has hired APCO, a global public relations and image management firm APCO World-wide, a firm that itself has been a subject of lot of controversy.

While Maggi is hardly the first food brand to come under the adulteration scanner in India, it certainly is the most high-profile case in the era of social me-dia when consumer judgments can be instantaneous. And Nestlé’s handling of the crisis has been widely criticised.

In 1990, the soft drinks brand Rasna was found to contain a substance called bro-minated vegetable oil (BVO) that binds artificial citrus flavours to the water. India was one of the earliest countries to ban the substance – in 1990 – in which is known to induce memory loss of allied disorders. In the US, beverage giants Coke and Pepsi shunned it completely only sometime last year. Rasna survived the controversy but lost ground to competition and changing consumer preferences in later years.

Dhara, the edible oil brand of the Na-tional Dairy Development Board, then headed by the legendary Verghese Ku-rien, found itself in controversial terri-tory in 1998 when its mustard oil was found to contain argemone oil. A major outbreak of epidemic dropsy occurred in

Delhi claiming more than two dozen lives owing to the consumption of contami-nated mustard oil. Dhara recalled every packet of mustard oil from the market, and the situation virtually snowballed into a mini agriculture and food crisis. The crisis, however, did help in cleaning up the pervasive argemone oil contamina-tion in the entire edible oils business.

When Centre For Science and Environ-ment (CSE) in 2003 alleged that its tests found pesticide traces in both PepsiCo and Coca-Cola flagship beverages, the initial response of the two giants wasn’t dissimilar to Nestlé’s. With claims and counter-claims about the credibility of tests, labs and data, it descended into a free for all. That’s when Outlook’s editor Vinod Mehta cheekily sent a bottle each of Coke and Pepsi to a large, well-known lab in London, and the test results gave

both MNCs a clean chit. That fuelled the stoichiometric war further. The hustling members of the two companies’ PR ma-chinery went from newsroom to news-room “sensitising” the media about CSE’s anti-business designs.

In times of a pitched cola war between Coke and Pepsi, the controversy brought the two CEOs of the two companies to ad-dress a joint press conference—the rarest of rare sights. There was a mini farcical controversy even at the press conference when the two CEOs instead of publicly glugging their own brown sodas to reas-sure consumers, were photographed sip-ping “generic” water while on stage. The boo-boo added to their list one more PR bomb to be diffused to their list. And it was diffused by an afterthought photo-op with the two gentlemen holding their own respective cola cans.

Arguably the best handling of a similar crisis pretty much around the same time as “pesticides in cola” was done by the chocolate-maker Cadbury. A consumer en-countering a worm-infested pack of Dairy Milk chocolate was a big blow for a com-pany that had always made a big show of its Quaker roots and clean image globally.

Cadbury went into overdrive to tell consumers that improper storage of what is essentially a perishable commodity might lead to worm infestation. It’s then CEO, Bharat Puri, fronted up visiting media offices around the country meeting reporters and editors answering mostly hostile questions.

Instead of going into denial mode, Cad-bury’s first response was acceptance of the problem and then addressing it through changes visible to the consum-ers. The new double packaging even for the then smallest offering, the Rs 5 Dairy Milk, had the bar wrapped in an alumin-ium foil enclosed in a sealed polyflow pack. All that new padding, and a new ad campaign cost the company some Rs 50 crore. However, it regained the market share and the trust it had lost in a matter of months.

Maggi’s road to redemption may turn out to be a bit longer. F

While Maggi is hardly the first food brand to come under the adulteration

scanner in India, it certainly is the most high-profile case in the era of

social media when consumer judgments can

be instantaneous

CORpORATE

Page 46: Financial Planning Lessons Financial Planning Lessons

Close June 23, 2015

Close May 29, 2015

Return (%)

Return 6 M (%)

Return 12 M (%)

PE Ratio

Sensex 27804.37 27828.44 -0.09 2.07 9.71 22.22

Nifty 8381.55 8433.65 -0.62 2.31 10.49 21.87

BSE 500 10933.84 11023.76 -0.82 3.37 12.27 22.61

BSE Auto 18772.49 19079.79 -1.61 0.98 22.17 20.57

BSE Bankex 21091.01 21511.65 -1.96 -1.11 20.23 17.75

BSE Capital Goods 17486.35 16802.01 4.07 16.14 10.98 308.41

BSE Consumer Durables 10591.62 10666.11 -0.70 11.11 20.22 31.38

BSE Oil & Gas 9979.60 9643.21 3.49 0.58 -13.10 13.03

BSE Metal 9500.08 9728.35 -2.35 -10.99 -29.52 39.41

BSE Realty 1425.05 1537.68 -7.32 -7.42 -32.89 16.40

BSE PSU 7760.31 7815.80 -0.71 -4.92 -11.39 10.39

BSE Power 2037.23 2069.81 -1.57 -0.17 -9.92 121.71

BSE Tech 6051.12 6122.23 -1.16 4.91 17.23 21.80

Indian Indices: Performance

Global Indices: PerformanceClose

June 23, 2015Close

May 29, 2015Return

(%)Return

6 M (%)Return

12 M (%)PE

Ratio

MSCI World Index 1795.98 1779.31 0.94 3.45 2.74 18.86

MSCI Asia Pacific Ex Japan 489.81 498.34 -1.71 5.89 0.51 13.47

ASIA

Hang Seng 27333.46 27424.19 -0.33 17.01 19.48 11.36

Singapore Straits Times (STI) 3339.78 3392.11 -1.54 0.09 2.68 15.06

S. Korea 2081.20 2114.80 -1.59 7.17 5.27 17.86

Nikkei 225 20809.42 20809.42 0.00 16.88 36.34 23.55

AMERICA

Dow Jones 18144.07 18010.68 0.74 -0.36 6.51 15.52

S&P 500 2124.20 2107.39 0.80 1.28 7.61 18.65

NASDAQ 5160.10 5070.03 1.78 7.31 16.96 30.77

Brazil Bovespa 53772.43 52760.48 1.92 5.80 0.78 33.07

EUROPE

FTSE-100 6834.87 6984.43 -2.14 3.55 1.65 21.51

DAX 30 11542.54 11413.82 1.13 15.61 16.25 18.51

CAC 40 5057.68 5007.89 0.99 17.45 13.11 26.04

All figures as on June 23, 2015

STAT DOSSIER46 The Finapolis l July 2015

Page 47: Financial Planning Lessons Financial Planning Lessons

June 23, 2015

may 29, 2015

% change

52 Week High

% change from

52 Week High

52 Week low

% change from

52 Week low

LME Lead 3 Month ($/t) 1796.00 1950.00 -7.90% 2307.00 -22.15% 1676.50 7.13%

ICE Sugar (cents/lb) 11.25 11.98 -6.09% 18.04 -37.64% 11.10 1.35%

LME Zinc 3 Month ($/t) 2055.00 2188.00 -6.08% 2416.00 -14.94% 1981.00 3.74%

Comex Silver (S.oz) 15.74 16.70 -5.77% 21.53 -26.89% 14.10 11.61%

LME Copper 3 Month ($/t) 5780.00 6015.00 -3.91% 7212.00 -19.86% 5339.50 8.25%

CBOT Soy Oil (cents/lb) 32.82 33.33 -1.53% 41.15 -20.24% 29.32 11.94%

ICE Cotton (cents/lb) 63.58 64.35 -1.20% 85.30 -25.46% 57.05 11.45%

Comex Gold (S/oz) 1176.20 1189.40 -1.11% 1346.80 -12.67% 1130.40 4.05%

LME Aluminium 3 Month ($/t) 1725.00 1740.00 -0.86% 2119.50 -18.61% 1687.50 2.22%

Nymex Crude Oil (S/bbl) 61.01 60.30 1.18% 107.50 -43.25% 42.03 45.16%

ICE Coffee (cents/lb) 127.70 126.15 1.23% 225.50 -43.37% 123.55 3.36%

LME Nickel 3 Month ($/t) 12860.00 12620.00 1.90% 19990.00 -35.67% 12205.00 5.37%

LIFFE Sugar (S/t) 356.60 349.10 2.15% 491.80 -27.49% 343.60 3.78%

Nymex Natural Gas ($/mmbtu) 2.73 2.64 3.18% 4.60 -40.70% 2.44 11.58%

CBOT Corn (cents/bushel) 367.50 351.50 4.55% 446.00 -17.60% 318.25 15.48%

CBOT Soybean (cents/bushel) 987.50 934.00 5.73% 1448.00 -31.80% 904.00 9.24%

CBOT Soy Meal ($/t) 331.90 305.70 8.57% 476.90 -30.40% 296.30 12.01%

CBOT Wheat (cents/bushel) 521.50 477.00 9.33% 677.00 -22.97% 460.00 13.37%

June International commodity Futures Price Trends

STAT DOSSIER

Lead-9.3%

Zinc- 7.6%

Silver-6.3%

Copper- 5.0%

Cotton- 2.7%

Cardamom- 2.3%

Aluminum- 1.5%

Gold, 1.0%

Crude Oil1.1%

Nickel 1.1%

Natural Gas2.4%

Mentha Oil11.5%

commodities: June Gainers and losers (%)

All figures as on June 23, 2015

MCx nCDEx

Soybean - 12.5%

Jeera- 9.2%

Turmeric-9.2%

Soy Oil- 5.3%

RM Seed- 4.3%

Barley-2.3%

Wheat- 0.5%

47July 2015 l The Finapolis

Page 48: Financial Planning Lessons Financial Planning Lessons

Company June 23, 2015 May 29, 2015 (%) Change

Reliance 995.00 877.00 13.45

Larsen & Toubro 1766.55 1654.45 6.78

Zee Entertainment 345.55 323.75 6.73

Coal India 415.40 391.05 6.23

Mahindra & Mahindra 1336.10 1258.10 6.20

NIFTy ToP

5Company June 23, 2015 May 29, 2015 (%) Change

Sun Pharma 857.70 966.10 -11.22

Vedanta 176.45 196.45 -10.18

Tata Motors 436.00 481.65 -9.48

HCL Tech 927.45 1010.75 -8.24

NMDC 118.55 129.05 -8.14

NIFTy BoTToM

5nIFTY MOVEMEnT

BSE BAnkEx BSE CApITAl GOODS

Cnx-MIDCAp MOVEMEnT

7.9%

DOW JOnES HAnG SEnG

7300

7585

7870

8155

8440

8725

9010

Jun-14 Sep-14 Dec-14 Mar-15 Jun-1510450

10990

11530

12070

12610

13150

13690

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

16400

17600

18800

20000

21200

22400

23600

Jun-14 Sep-14 Dec-14 Mar-15 Jun-1513850

14625

15400

16175

16950

17725

18500

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

16010

16400

16790

17180

17570

17960

18350

Jun-14 Sep-14 Dec-14 Mar-15 Jun-1522550

23545

24540

25535

26530

27525

28520

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

All figures as on June 23, 2015

STAT DOSSIER

The loss in LME Lead.

Rise in the inventory by 12700 MT while dip in the

cancelled warrants by 14750 MT added to the

relentless fall in the metal this month

48 The Finapolis l July 2015

Page 49: Financial Planning Lessons Financial Planning Lessons

CuRREnCY EnERGYBrent Crude (US$/bbl)

RBi Monetary Data

Rupee Movement

inflation (%)

Real GDP Growth Fii vs. MF (Rs cr)

iiP (%)

11%Gold (US$/OZ) Silver (US$/OZ)

10-year bond yield (%)

METAlS

ECOnOMY

Repo Reverse Repo Cash Reserve Ratio SLR

7.50 6.50 4.00

21.50

7.25 6.25 4.00

21.50 Prior (%) Latest (%)

59.0

59.9

60.8

61.7

62.6

63.5

64.4

Jun-14 Sep-14 Dec-14 Mar-15 Jun-1550.0

59.8

69.6

79.4

89.2

99.0

108.8

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

1135

1170

1205

1240

1275

1310

1345

Jun-14 Sep-14 Dec-14 Mar-15 Jun-1515.00

16.10

17.20

18.30

19.40

20.50

21.60

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

-3.0-1.50.01.53.04.56.0

May

-14

Jun-

14

Jul-

14

Aug

-14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr

-15

May

-15

-4

-2

0

2

4

6

Apr

-14

May

-14

Jun-

14

Jul-

14

Aug

-14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr

-15

Mar-14 Jun-14 Sep-14 Dec-14 Mar-15

6.7 6.5 8.2 7.5

6.1

7.6

7.8

8.0

8.2

8.4

8.6

8.8

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

0

2000

4000

6000

8000

10000

-10000

-5000

0

5000

10000

15000

Jun-

14Ju

l-14

Aug

-14

Sep-

14O

ct-1

4N

ov-1

4D

ec-1

4Ja

n-15

Feb-

15M

ar-1

5A

pr-1

5M

ay-1

5Ju

n-15

FII DII (RHS)

STAT DOSSIER

13%

All figures as on June 23, 2015

Fall in NCDEX soybean.

Anticipated increase in acreage of soybean due

to good monsoon in major soybean producing areas of Central and North West parts of India pressurised

the counter downward

Gain in MCX Mentha Oil.

Lower carryover stocks, production short fall and

demand from various user industries supported

the positive trend

49July 2015 l The Finapolis

Page 50: Financial Planning Lessons Financial Planning Lessons

Equity Diversified

Mutual Fund Scheme NAV 1 yr 2 yr 3 yr

Franklin (I) Smaller Cos (G) 38.05 37.4 54.0 41.9

SBI Magnum Midcap Fund (G) 59.49 46.3 56.4 41.6

ICICI Pru Exp&Other Services-RP (G) 44.01 39.0 50.2 40.7

Franklin Build India Fund (G) 29.38 44.7 53.7 38.7

Mirae Emerging Bluechip Fund (G) 29.87 40.1 54.8 38.7

DSP-BR Micro Cap Fund - RP (G) 39.96 49.8 64.7 38.6

UTI Mid Cap (G) 78.64 38.8 57.7 38.0

JPMorgan (I) Mid and Small Cap (G) 19.35 38.0 52.9 37.9

Reliance Small Cap Fund (G) 23.86 28.4 62.3 37.9

Can Robeco Emerg-Equities (G) 58.99 39.9 60.0 37.4

Principal Emerging Bluechip(G) 68.54 37.6 50.2 36.9

Franklin High Growth Cos (G) 29.82 40.3 47.9 36.8

Franklin India Prima Fund (G) 665.08 35.8 47.3 36.8

Religare Invesco Mid N SmallCap (G) 35.66 34.6 48.3 36.1

BNP Paribas Mid Cap Fund (G) 24.49 34.2 48.4 35.6

Tata Mid Cap Growth Fund (G) 101.60 39.7 51.8 35.4

Axis Mid Cap Fund (G) 25.64 28.8 46.7 35.4

Religare Invesco Mid Cap (G) 34.80 36.4 49.2 35.0

Sundaram Select Midcap -RP (G) 337.20 33.7 48.9 34.3

ICICI Pru Value Discovery Fund (G) 115.15 28.9 51.7 34.1

L&T Midcap Fund (G) 86.32 35.1 52.6 34.0

Birla SL Pure Value Fund (G) 37.25 12.2 50.4 34.0

Sundaram SMILE Fund (G) 67.80 36.1 61.6 33.9

HDFC MidCap Opportunities (G) 37.71 31.2 48.9 33.6

ICICI Pru MidCap Fund (G) 69.63 29.7 55.8 33.6

Kotak Emerging Equity - Regular (G) 25.94 43.3 50.1 33.5

L&T India Value Fund (G) 24.13 28.8 46.3 33.5

SBI Magnum Global Fund (G) 132.23 39.0 44.1 33.1

Taurus Discovery Fund (G) 30.82 33.0 46.4 32.8

Escorts Leading Sectors (G) 22.08 40.6 41.7 32.6

Elss

Mutual Fund Scheme NAV 1 yr 2 yr 3 yr

Axis Long Term Equity Fund (G) 30.72 36.6 46.1 35.1

ICICI Pru RIGHT Fund (G) 30.71 32.7 46.5 34.3

SBI Tax Advantage Sr-2 (G) 22.70 24.3 44.0 33.3

IDFC Tax Advantage (ELSS)-RP (G) 40.65 34.9 40.8 31.0

Reliance Tax Saver (ELSS) (G) 46.25 25.7 46.4 31.0

Birla SL Tax Relief 96 (G) 21.38 33.3 40.2 30.1

SBI Tax Advantage Sr-1 (G) 22.90 26.7 43.5 29.7

Birla Sun Life Tax Plan (G) 27.06 31.9 38.8 29.1

Religare Invesco Tax Plan (G) 35.49 30.2 38.1 28.7

JM Tax Gain Fund (G) 12.10 26.1 36.5 28.4

BNP Paribas Long Term Equity (G) 29.99 29.1 38.8 28.3

Franklin India Tax Shield (G) 424.44 31.6 37.0 27.4

Principal Tax Savings 140.64 15.3 36.0 27.4

DSP-BRTax Saver Fund (G) 31.90 21.7 35.1 27.3

SBI Magnum Tax Gain (G) 114.72 24.5 35.9 26.3

ICICI Pru Tax Plan (G) 265.55 14.7 37.5 26.1

Edelweiss ELSS Fund (G) 36.14 27.3 32.4 25.6

HSBC Tax Saver Equity Fund (G) 26.69 17.3 31.8 24.8

BOI AXA Tax Advtg -Eco (G) 39.13 22.3 33.3 24.5

LIC NOMURA Tax Plan (G) 50.40 29.7 34.8 24.2

Performance of mutual Funds

Equity (banking)

Mutual Fund Scheme NAV 1 yr 2 yr 3 yr

ICICI Pru Bkg & Fin Serv-RP(G) 37.07 20.9 34.9 29.8

Reliance Banking Fund (G) 178.95 20.2 31.2 24.5

Religare Invesco Banking - RP(G) 35.04 24.4 28.4 24.0

Sahara Bkg & Fin. Services (G) 46.41 14.6 26.2 19.7

Sundaram Fin-Serv. Opp.-RP (G) 28.86 19.7 26.3 19.6

UTI Banking Sector (G) 66.11 15.8 24.9 19.5

Taurus Banking&Financial Serv. (G) 17.31 11.6 22.3 17.4

Baroda Bank & Financial Serv. (G) 16.12 18.1 24.2 17.2

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

STAT DOSSIER50 The Finapolis l July 2015

Page 51: Financial Planning Lessons Financial Planning Lessons

Performance of mutual Funds

Equity (FmcG)

Mutual Fund Scheme NAV 1 yr 2 yr 3 yr

ICICI Pru FMCG Fund (G) 156.03 27.7 19.1 19.5

miscellaneousMutual Fund Scheme NAV 1 yr 2 yr 3 yr

UTI Transport & Logistics (G) 84.67 38.0 68.7 44.6

Birla Sun Life Buy India (G) 92.53 42.8 43.2 34.2

JM Basic Fund (G) 21.86 24.0 34.3 24.1

Reliance Media & Entertain (G) 49.42 4.7 19.8 22.2

Religare Invesco PSU Equity (G) 13.80 11.7 24.7 13.6

UTI Energy Fund (G) 12.57 -1.1 25.2 12.6

Reliance Diver. Power - RP (G) 73.61 -2.5 30.5 12.4

Sundaram PSU Opportunities (G) 11.99 2.1 20.3 8.6

Equity (Tech)

Mutual Fund Scheme NAV 1 yr 2 yr 3 yr

ICICI Pru Tech. Fund (G) 39.92 21.3 42.3 29.6

Birla SL New Millennium (G) 33.96 20.9 35.6 24.7

DSP-BR Technology.Com -RP (G) 51.06 17.1 31.6 23.8

Franklin Infotech Fund (G) 114.01 23.2 34.0 23.3

Equity (Pharma)

Mutual Fund Scheme NAV 1 yr 2 yr 3 yr

SBI Pharma Fund (G) 137.74 60.5 48.3 41.4

Reliance Pharma Fund (G) 131.74 42.2 37.9 32.2

UTI Pharma & Health (G) 92.31 45.2 36.6 31.6

balanced

Mutual Fund Scheme NAV 1 yr 2 yr 3 yr

SBI Magnum Balanced Fund (G) 94.59 25.9 31.4 26.7

Tata Balanced Fund (G) 168.62 27.9 33.9 25.8

L&T India Equity & Gold Fund (G) 20.27 24.2 35.2 25.2

L&T India Prudence Fund (G) 19.22 23.2 32.7 25.0

ICICI Pru Balanced Fund (G) 91.68 19.4 30.2 24.2

Franklin India Balanced Fund (G) 90.45 28.0 30.0 23.6

HDFC Childrens Gift (Inv) 83.89 19.4 31.2 23.6

HDFC Balanced Fund (G) 108.04 20.2 34.4 23.5

Birla Sun Life 95 Fund (G) 556.78 20.7 29.8 23.1

ICICI Pru CCP - Gift Plan 100.49 9.9 33.8 22.0

Reliance RSF - Balanced (G) 39.70 20.3 29.8 21.9

JM Balanced Fund (G) 38.00 10.9 25.2 21.4

Can Robeco Balance (G) 111.41 21.4 29.7 20.9

HDFC Prudence Fund (G) 372.05 11.3 30.4 20.9

ICICI Pru Balanced Adv (G) 25.70 16.2 24.5 20.6

mIP

Mutual Fund Scheme NAV 1 yr 2 yr 3 yr

DWS Equity Income Fund - Dir (G) 25.17 20.0 14.7 --

Birla SL MIP II-Wealth 25-DP (G) 29.78 19.8 19.5 --

Birla SL MIP II-Wealth 25 (G) 29.34 18.8 18.7 15.7

DWS Equity Income Fund (G) 24.58 18.8 13.6 10.6

Sundaram MIP-Aggressive -Dir (G) 15.19 16.1 13.5 --

Reliance MIP - Direct (G) 34.09 16.1 14.7 --

Tata MIP Plus Fund - Direct (G) 25.01 15.8 14.3 --

SBI Magnum MIP - Direct (G) 30.77 15.8 12.2 --

Franklin India MIP -Direct (G) 44.21 15.8 14.6 --

Sundaram MIP-Aggressive (G) 15.06 15.7 13.1 11.8

SBI Magnum MIP Floater -Dir (G) 20.78 15.5 14.3 --

IDFC MIP - Direct (G) 17.06 15.2 13.6 --

ICICI Pru MIP 25 - Direct (G) 31.03 15.2 15.9 --

Reliance MIP (G) 33.39 15.0 13.7 12.5

SBI Magnum MIP (G) 30.23 15.0 11.4 11.7

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

STAT DOSSIER51July 2015 l The Finapolis

Page 52: Financial Planning Lessons Financial Planning Lessons

FunD REpORT CARD

Fund objective/mission

To provide capital appreciation by investing in companies focused on shareholder wealth creation. An open ended scheme to provide growth of capital plus regular dividends through a diversified portfo-lio of equities, fixed income securities and money market instruments.

Fund House DetailsAMC Name: Franklin TempletonWebsite: www.franklintempletonindia.com

Financial DetailsAUM As On (May 31, 2015) 4389.95 NAV As On (June 23, 2015) 442.31 Min Investment (in Rs.) Lumpsum 5000 SIP 500 NAV (52WeekHigh){April 13, 2015} 457.75 NAV (52WeekLow){July 14, 2014} 331.24

Top 10 Companies

Name (%)

Call Money 9.3

HDFC Bank 6.4

ICICI Bank 4.6

Infosys 4.2

Bharti Airtel 3.9

IndusInd Bank 3.8

Yes Bank 3.4

Cognizant Technology Solutions Corporation 2.4

Kotak Mahindra Bank 2.4

Dr. Reddys Laboratories 2.4

scheme Performance as on June 23, 2015

Period Returns B'mark Rank

3 Months 0.11 -1.22 149/(258)

6 Months 7.91 3.12 77/(238)

1 Year 33.01 14.48 52/(209)

3 Years 27.76 19.35 49/(167)

5 Years 17.02 9.55 33/(149)

Since Inception 20.04 14.49 NA

Top 10 Sector Wise Holding

Industry Name (%)

Bank - Private 25.1

Other 11.8

Pharmaceuticals & Drugs 9.6

IT - Software 7.5

Telecommunication - Service Provider 4.4

Automobiles-Trucks/Lcv 3.5

Refineries 3.2

Batteries 3.1

Diversified 2.4

Diesel Engines 2.4

5 years History

Financial Year 2014-15 2013-14 2012-13 2011-12 2010-11

NAV in ` (as on 31st March) 442.19 288.69 237.71 220.42 224.10

Net Assets (` Crores.) (as on 31st March) 3950 2166 1856 1856 1745

Returns(%) 53.25 20.77 7.24 -1.72 10.72

CNX NIFTY Returns(%) 26.33 17.53 6.86 -9.11 10.27

Category Rank 73(274) 80/(217) 68/(204) 57/(207) 66/(209)Latest As on 31 March, 15

Volatility measures

Fama 0.09

Beta 0.81

Std Dev 0.82

Sharpe 0.12

Investment InformationScheme Open ended scheme

Launch Date September 29, 1994

Fund Manager Anand Radhakrishnan

Bench Mark CNX 500 Index

Max.Entry Load (%) NA

Max.Exit Load (%) 1.00

Fund structure

Total Stocks 62

Total Sectors 35

P/E Ratio 31.19

P/B Ratio 6.31

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

81482.13

sIP Details: Invested rs 5000 Every monthPeriod Total Invest

(`)Scheme

(`)Bench mark

1 Year 60,000 66,493 62,190

3 Years 1,80,000 2,81,056 2,41,996

5 Years 3,00,000 5,27,911 4,34,216

10 Years 6,00,000 15,63,168 11,12,573

Franklin India Prima Plus Fund (G)

Source: ACEMF

52 The Finapolis l July 2015

Page 53: Financial Planning Lessons Financial Planning Lessons

FunD REpORT CARD

Fund objective/mission

The investment objective of the scheme is to provide income distribu-tion / medium to long term capital gains while all times emphasizing the importance of capital appreciation.

Fund House DetailsAMC Name: Tata asset managementWebsite: www.tatamutualfund.com

Financial DetailsAUM As On (May 31, 2015) 1066.24 NAV As On (June 23, 2015) 148.18 Min Investment (in Rs.) Lumpsum 5000 SIP 500 NAV (52WeekHigh){March 03, 2015} 157.93 NAV (52WeekLow){July 14, 2014} 117.34

Top 10 Companies

Name (%)

HDFC Bank 5.5

CBLO 4.2

Axis Bank 4.1

Sadbhav Engineering 3.3

HCL Technologies 3.1

ICICI Bank 3.0

Bharat Electronics 2.9

Ultratech Cement 2.8

Maruti Suzuki India 2.8

Tata Motors 2.7

scheme Performance as on June 23, 2015

Period Returns B'mark Rank

3 Months -2.22 -1.31 261/(258)

6 Months 5.74 3.21 121/(238)

1 Year 25.37 14.63 97/(209)

3 Years 24.31 18.95 92/(167)

5 Years 13.32 9.32 83/(149)

Since Inception 12.83 11.54 NA

Top 10 Sector Wise Holding

Industry Name (%)

Bank - Private 15.0

Engineering - Construction 10.5

Pharmaceuticals & Drugs 10.3

IT - Software 8.0

Cement & Construction Materials 5.9

Other 5.3

Automobiles - Passenger Cars 4.4

Bank - Public 3.5

Finance - NBFC 3.1

Electronics - Components 2.9

5 years History

Financial Year 2014-15 2013-14 2012-13 2011-12 2010-11

NAV in ` (as on 31st March) 151.87 101.92 84.38 78.57 79.38

Net Assets (` Crores.) (as on 31st March) 1053 440 460 291 346

Returns(%) 48.62 20.00 6.33 -1.47 -1.02

CNX NIFTY Returns(%) 26.33 17.53 6.86 -9.11 10.27

Category Rank 95/(274) 86/(217) 82/(204) 51/(207) 175/(209)Latest As on 31 March, 15

Volatility measures

Fama 0.06

Beta 0.90

Std Dev 0.92

Sharpe 0.08

Investment InformationScheme Open ended scheme

Launch Date February 25, 1993

Fund Manager Pradeep Gokhale

Bench Mark S&P BSE 200

Max.Entry Load (%) NA

Max.Exit Load (%) 1.00

Fund structure

Total Stocks 59

Total Sectors 35

P/E Ratio 26.40

P/B Ratio 5.56

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

87749.75

sIP Details: Invested rs 5000 Every monthPeriod Total Invest

(`)Scheme

(`)Bench mark

1 Year 60,000 64,587 62,255

3 Years 1,80,000 2,64,597 2,39,811

5 Years 3,00,000 4,93,218 4,30,453

10 Years 6,00,000 13,16,489 11,22,765

Tata Equity opportunities Fund (G)

Source: ACEMF

53July 2015 l The Finapolis

Page 54: Financial Planning Lessons Financial Planning Lessons

Fund objective/mission

To generate long term capital appreciation and current income from a portfolio that is invested in equity and equity related securities as well as in fixed income securities. However, there can be no assurance that the investment objective of the Scheme will be realized.

Fund House DetailsAMC Name: IcIcI Prudential asset managementWebsite: www.icicipruamc.com

Financial DetailsAUM As On (May 31, 2015) 2118.54 NAV As On (June 23, 2015) 91.68 Min Investment (in Rs.) Lumpsum 5000 SIP 1000 NAV (52WeekHigh){March 03, 2015} 95.03 NAV (52WeekLow){June 23, 2014} 76.10

Top 10 Companies

Name (%)

08.60% GOI - 02-Jun-2028 6.5

08.30% GOI - 31-Dec-2042 5.1

HDFC Bank 4.9

07.88% GOI - 19-Mar-2030 4.2

Infosys 3.4

CBLO 3.4

CNX Nifty Index 3.0

Grasim Industries 2.8

1.44% GOI IIB 2023 2.6

Tata Motors 2.6

scheme Performance as on June 23, 2015

Period Returns B'mark Rank

3 Months 0.61 -0.79 130/(175)

6 Months 6.48 2.49 85/(157)

1 Year 20.47 12.04 23/(125)

3 Years 24.01 14.79 4/(43)

5 Years 16.69 9.29 2/(36)

Since Inception 15.21 13.27 NA

Top 10 Sector Wise Holding

Industry Name (%)

Unspecified 19.0

Bank - Private 11.8

IT - Software 9.6

Other 5.5

Pharmaceuticals & Drugs 4.3

Automobiles - Passenger Cars 3.8

Bank - Public 3.5

Index 3.0

Diversified 2.8

Automobiles-Trucks/Lcv 2.6

5 years History

Financial Year 2014-15 2013-14 2012-13 2011-12 2010-11

NAV in ` (as on 31st March) 91.73 66.18 54.39 48.73 46.49

Net Assets (` Crores.) (as on 31st March) 1879 692 464 325 264

Returns(%) 38.88 21.14 10.93 4.95 11.75

CNX NIFTY Returns(%) 26.33 17.53 6.86 -9.11 10.27

Category Rank 14(204) 6/(147) 9/(84) 17/(55) 6/(47)Latest As on 31 March, 15

Volatility measures

Fama -0.02

Beta 1.25

Std Dev 0.68

Sharpe 0.09

Investment InformationScheme Open ended scheme

Launch Date November 03, 1999

Fund Manager Yogesh Bhatt

Bench Mark Crisil Balanced Fund

Max.Entry Load (%) NA

Max.Exit Load (%) 1.00

Fund structure

Total Stocks 47

Total Sectors 38

P/E Ratio 25.69

P/B Ratio 8.25

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

63352.29

sIP Details: Invested rs 5000 Every monthPeriod Total Invest

(`)Scheme

(`)Bench mark

1 Year 60,000 63,678 62,210

3 Years 1,80,000 2,59,510 2,24,837

5 Years 3,00,000 4,99,928 4,07,882

10 Years 6,00,000 13,62,293 10,53,332

IcIcI Pru balanced Fund-reg (G)

Source: ACEMF

FunD REpORT CARD54 The Finapolis l July 2015

Page 55: Financial Planning Lessons Financial Planning Lessons

FunD REpORT CARD

Fund objective/mission

To generate income through arbitrage opportunities available within the derivative segment, by using other derivative based strategies. Also by investing in balance, debt and money market instruments. The Scheme does not assure or guarantee any returns.

Fund House DetailsAMC Name: axisWebsite: www.axismf.com

Financial DetailsAUM As On (May 31, 2015) 142.66 NAV As On (June 23, 2015) 10.71 Min Investment (in Rs.) Lumpsum 5000 SIP NAV (52WeekHigh){June 23, 2015} 10.71 NAV (52WeekLow){Aug 14, 2014} 10.00

Top 10 Companies

Name (%)

Net Current Asset 63.5

Clearing Corporation Of India 11.9

HDFC Bank 9.2

Reliance Industries 8.3

Tech Mahindra 8.1

Axis Bank 6.3

Syndicate Bank (10-Jun-15) 6.3

ICICI Bank 5.7

JM Financial Products -365D (09-Mar-16) 5.2

State Bank Of India 5.1

scheme Performance as on June 23, 2015

Period Returns B'mark Rank

3 Months 8.80 2.15 9/(25)

6 Months 8.43 4.26 15/(25)

1 Year NA NA NA

3 Years NA NA NA

5 Years NA NA NA

Since Inception 7.14 6.71 NA

Top 10 Sector Wise Holding

Industry Name (%)

Other 63.5

Finance - Investment 11.9

Bank - Private 10.5

Finance - NBFC 8.0

Bank - Public 6.3

Automobiles - Passenger Cars 0.2

Automobile Two & Three Wheelers 0.0

Pesticides & Agrochemicals 0.0

Cigarettes/Tobacco 0.0

Automobiles-Trucks/Lcv 0.0

5 years History

Financial Year 2014-15 2013-14 2012-13 2011-12 2010-11

NAV in ` (as on 31st March) 10.53 - - - -

Net Assets (` Crores.) (as on 31st March) 69 - - - -

Returns(%) 5.25 - - - -

CNX NIFTY Returns(%) 26.33 17.53 6.86 -9.11 10.27

Category Rank 20/(24) - - - -Latest As on 31 March, 15

Volatility measures

Fama 0.01

Beta 0.04

Std Dev 0.07

Sharpe 0.20

Investment InformationScheme Open ended scheme

Launch Date August 14, 2014

Fund Manager Ashwin Patni

Bench Mark Crisil Liquid Fund Index

Max.Entry Load (%) NA

Max.Exit Load (%) 0.25

Fund structure

Total Stocks 26

Total Sectors 21

P/E Ratio 19.39

P/B Ratio 3.57

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

89699.37

sIP Details: Invested rs 5000 Every monthPeriod Total Invest

(`)Scheme

(`)Bench mark

1 Year 60,000 NA NA

3 Years 1,80,000 NA NA

5 Years 3,00,000 NA NA

10 Years 6,00,000 NA NA

axis Enhanced arbitrage Fund-reg (G)

Source: ACEMF

55July 2015 l The Finapolis

Page 56: Financial Planning Lessons Financial Planning Lessons

Money C HAT

A monthly series in The Finapolis where we talk to a diverse set of families to understand their attitude towards financial planning. Our in-house financial advisor offers his suggestions for a more robust portfolio. If you’d like to talk to us and be featured, write in to: [email protected]

56 The Finapolis l July 2015

Sharath Nair, 30, is a Project Manager with a

multinational firm. His wife Akhila, 24 just delivered their first baby Arjun, five months

ago. Akhila worked at a software company but quit

when she became pregnant. Currently, Sharath is the sole

earning member in his family.

Page 57: Financial Planning Lessons Financial Planning Lessons

Money Chat57July 2015 l The Finapolis

Sharath has a health insurance cover worth Rs 3 lakh and a life

insurance scheme of Rs 2 lakh for self and the same amount for his spouse. He still believes, he isn’t adequately insured and would like to consider a top up scheme in future. Insurance is currently his only tax saving instrument. His near-term goal is to build a house by for which he’ll have to take a home loan.

Over the years, Sharath has managed to save a sum but is nowhere close to his financial goals in securing his and his family’s future. His contingency funds include savings in gold and chit funds savings. Sharath says he has benefitted from his investments in chit funds but strongly believes there are better managed asset classes

that can give him good returns. He is just about beginning to seek professional advice from a financial advisor on

managing his money and trying to diversify his investments in addition to the existing ones.

The current financial situation of Sharath seems to be off-balance and there are a few aspects which need attention. The first and foremost thing for him to do

is to take a term insurance. Going by the income replacement multiplier of 15, we estimate he needs a cover of Rs 1.35 crore. He can save a lot if he takes term insurance and close

Sharath’s take home salary is around Rs 60,000 a month. He is a fairly conservative

investor and has allocated most of his savings to chit funds (worth Rs 200,000). Sharath’s asset allocation strategy is pretty simple, accumulate as much liquid cash as possible and later

invest in the stock market. Perhaps true to his Kerala roots, Sharath sees gold as a great investment.

He has around Rs 5 lakh worth of the yellow metal. He wants to see quick returns on his investments and believes gold, bonds and equity investments can help him do so.

INVEsTmENTs

THE roaD aHEaD

EXPErT TaKE

Page 58: Financial Planning Lessons Financial Planning Lessons

Money ChatMoney Chat58 The Finapolis l July 2015

other unproductive insurance policies which in the name of investment don’t even beat inflation. Sharath needs to plan for managing his future expenses and goals efficiently by carefully considering various investment options. The need to look out for different investment options to diversify the saving is known as asset allocation.

Allocating the assets into two major asset classes i.e. equity and debt (which includes chit funds and gold) will be a good step towards tactical asset allocation. The tactical asset strategy helps in the risk-adjusted returns of pass ive management investing. The decision of allocating saving into different investment product should pass through three important steps. The first step is to find out the savings in hand, which means, out of his monthly income how much money he could save in a month to start with, and the lump sum at his disposal. We would like to see at least 30% of his income going into long term investment, and 5% into creating an emergency fund. Ideally persons in their 30s should try to maximise their savings because usually that’s the time when liabilities tend to be lower.

While investing in the chit funds there are a few important things to examine. Unorganised chit fund schemes not registered with the government are illegal. Investing in recognised chit funds may be good for small entrepreneurs who need quick

access to capital at a reasonably low cost. For investors wanting build a long-term corpus, chit funds are hardly the ideal instrument.

The shine of the yellow metal seems to be fading as gold has not given any reasonable return in recent past. Though gold work as a hedge, the exposure to it should not cross 10% of your portfolio. We would suggest, instead of keeping gold in physical mode where there is a high cost of

storing and keeping it safe and also making charges in case of gold in form of jewellery, Sharath can invest in gold ETFs. Mutual funds are the best instrument for people starting to build a portfolio.

Sharath should start SIPs in equity mutual funds. In the journey towards creating wealth one major area, often overlooked by salaried individual is retirement planning. One may argue the inclusion of provident fund for the same, but he will require a sizable corpus which is not possible without additional investment. While choosing mutual funds, he should choose large cap funds to begin with. Once he realises that his risk appetite is higher, he could enter well-rated midcap funds. If you take a long term view, there is no better wealth compounding machine than equity investments. F

Children planning and Marriage

• Gold investment• Mutual Fund SIP investment

• Chit Funds• Debt Mutual Funds

• Provident Fund• NPS • Equities

• Debt Mutual Funds• Chit Funds

Home Buying/reducing liabilities

Vacation Abroad/medium Term

Goal

Retirement planning

Asset Allocation Aligned With Goals

Page 59: Financial Planning Lessons Financial Planning Lessons

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60 The Finapolis l July 2015

ETCETERA

New York is best known among Indian travellers for the Statue of Liberty and other iconic spots. But there’s a lot more you can do in the Big Apple. Relax at Jazz bars or take leisurely walks in many of its wonderful parks By Mubashir Ansari

new York, the Big Apple is the world’s ultimate maximum City and the island of Manhattan is its

jewel in the crown. There are 5 boroughs that constitute New York City: Manhattan, Bronx, Brooklyn, Staten Island and Queens. Man-hattan which is loosely used interchangeably with New York is in some ways a glorious paradox. Manhattan’s diversity is ubiquitous. On its streets the ex-clamatory salience of its skyscrapers co-ex-ists with the majestic architecture of some

of its classical buildings. The super rich in New York min-gle with the poor and home-less where a pizza could cost 99 cents to $20. The electrify-ing energy of the people on the streets is palpable and is often interspersed with some folks languishing on

the quieter sidewalks playing chess. Perhaps the world’s most com-petitive city, it is a pot-pourri of extraordinary people from all over the world, in a way all super achievers whether it is a cab driver, a waiter or a Wall Street executive.

New York does not tolerate mediocrity of

any kind. It is like a treadmill that is moving

at a scorching

pace, where the slow of speed have to necessarily get off and perhaps move across the Hudson to New Jersey, only the most com-petitive survive in Manhat-tan. One can easily spot a New Yorker on the streets. They will always walk pur-posefully with a disdainful spring in their stride. Any outsider sticks out like a sore thumb, apparent from their hesitancy and a kind of bewildered look.

60 The Finapolis l July 2015

5 ExtraordinaryThings To Do In New York!

5 ExtraordinaryThings To Do In New York!

Page 61: Financial Planning Lessons Financial Planning Lessons

61July 2015 l The Finapolis

ETCETERA

Spring and early summer is the best time to visit New York City with a fairly agreeable weather and the onset of a lot of activity on the streets such as the local markets, flea markets, musical shows, art crawls and the like. Commuting in New York is very easy and intuitive and unlike in the rest of the US, you could get by easily without a car. In Manhattan all the Avenues run North-South while the Streets run East-West and the entire city is well connected with the train system and taxis for shorter hops. In fact the cab drivers of Manhattan are from all over the world and most times one can have a stimulating conversation with them.

1. A World Class Shopping ExperienceMost tourists would say that New York is an expensive place to shop. This may be true if you have limited time and do not have the inclination to visit the many shopping haunts that offer a variety of discounts and sales for ev-

ery occasion, be it Mother’s Day, Memo-rial Day sale during spring/summer months. Serendipitous shopping by just checking out brands that have announced a sale in up market places shopping haunts like Bloomingdale, Saks and Tif-fany’s or even mid-market outlets like Macy’s, H&M and Zara offer attractive bargains on clothes and accessories. On

a sale which could be up to 50%, you could get something of comparative

value in India and far superior than you get in Dubai or London.

2. The Flea Markets Of new YorkWho would imagine that some of the flea markets in NYC are a delightful place to get some really unbelievable bargains. If you have the time and inclination and are looking for deep discounts on a countless array of items like memorabilia, arte-facts, crockery, old records, books... the list is endless. You could get a pair of beau-tiful cuff-links for instance for $5 or a set of exquisite wine glasses with ornate gold work for $25. There are shoppers who have bought a whole collection of postal stamps for as less as $20. Even if you don’t find anything interesting, it is a great experi-ence checking out, a variety of items that may very well belong in a museum. The fleas markets are on from May until Sep-tember all over New York especially in Manhattan and Brooklyn.

3. An Epicurean AdventureThere is a plethora of eclectic restaurants offering an amazing variety of delectable gastronomic delights, from all over the world. This ranges from fine dining to bis-tros, cafes, delis, food courts and roadside eating joints spread all across New York. Japanese, French, Italian, Korean, Indian, Vietnamese, and Mediterranean you name it. The fusion foods have also become a rage. There is better Thai food in NYC than what you get in Bangkok and definitely better Italian food than what you get in Italy. You get introduced to the many splen-doured tastes of regions like the famous dip from Latin America called Guacamole made from avocados and an exciting ac-companiment with all kinds of alcoholic

Spring and early summer is the best time to visit New

York City with a fairly agreeable weather and the onset of a lot of activity on

the streets such as the local markets, flea markets,

musical shows, art crawls and the like

61July 2015 l The Finapolis

Page 62: Financial Planning Lessons Financial Planning Lessons

62 The Finapolis l July 2015

beverages. Then there is an amazing vari-ety of food from excellent though expensive steak joints to exclusive sea food. The lob-ster roll is to die for. Then there is typical American breakfast delis and beer gardens that serve a wide variety. The food prices are not unaffordable; in fact the cost of a meal in a very decent restaurant is about the same as what you would pay in Mum-bai. The tips range from 15-20%. It is claimed that if one were to eat out twice a day, every single day of the year one will not exhaust all the restaurants in NYC.

4. The Art Galleries Of SohoSoho which is a quaint district in South East Manhattan is a paradise for people who appreciate art. Just walk around and pop into the galleries that exhibit some of the most interesting works of art from around the world, by artists of all genres from art deco to modern, abstract to clas-sical all for excellent value for money. On weekends you could join an art crawl which basically is an art appreciation group that moves from gallery to gallery absorbing, appreciating some of the world’s most celebrated artists.

5. The Museums Of new YorkNew York has the most fascinating Muse-ums and art galleries and could very well give London a stiff competition. However unlike in London where most Museums are free, there is a nominal charge in New York. Most of the well known Museums are locate on the “Museum Mile” on Man-hattan’s Upper East Side. Some of the most popular ones are The Metropolitan Museum (MET), Museum of Modern Art (MoMA), The American Museum of Nat-ural History, The Guggenheim which is famous for its art housed in a architectur-ally acclaimed building. For the art lovers the Frick Collection and the Whitney Mu-seum of American Art are a must see.

Although there are a dozen more muse-ums with each Borough having its own showcase, if you cover the ones men-tioned, you have the best that New York could offer. The Cloisters is a fascinating museum that is not frequented by visitors located in Upper Manhattan and exhibits an extensive collection of art from Medi-eval Europe.

New York City offers something for ev-eryone. Whether you are in the mood for a brisk walk in the Central Park or catch a musical show on Broadway all located around Times Square, or relax in one of the jazz bars you are bound to be complete-ly in the grip of the Big Apple the world’s most fascinating Maximum City. F

ETCETERA

New York City offers something for everyone. Whether you are in the

mood for a brisk walk in the Central Park or catch a

musical show on Broadway all located around

Times Square

62 The Finapolis l July 2015

Page 63: Financial Planning Lessons Financial Planning Lessons

63July 2015 l The Finapolis

The author is the COO - Business & International Director, JLL India

Negotiate for what you estimate to be a realistic

price. If the developer refuses, don’t be surprised if you hear back from him a

few days later, willing to reconsider your offer

rameSh nairrealty check

Yes, it is possible to negotiate with residential property developers. As home sales continue to look

sluggish in many parts of the country, developers are becoming more open to a bit of creativity on their stated terms. How can you, as a buyer, put your best foot forward at the negotiation table? Above everything else, the Scout’s Motto holds true - Be Prepared.

You should be conversant with compa-rable sales in the project’s vicinity, and know how long it has been on the market. It is important to establish what the launch rates were, how they have moved since then and what the current demand for flats like yours is in the stated locality. You should also find out by word of mouth how much the developer is willing to ne-gotiate. Typically, developers make deci-sions on pricing based on how a particular project is performing, as well as on how they are faring in general.

If you are interested in an apartment but feel you cannot afford it at the quoted price, have no apprehension. Many sale prices today are quoted prices, and there is room to negotiate. While developers today are willing to relent off the radar, they are averse to reducing the official quoted price below a certain point. This is partially because they don’t want to advertise the fact that certain customers paid less than others. They are often like-lier to offer freebies or incentives. If possible, try to find a group of buyers and negotiate for a bulk discount Keep in mind that if you have the abil-ity to pay a larger upfront amount, you have extra bargaining power Ensure that you have obtained a pre-approved loan from a home finance com-pany for a home loan, based on your in-come. A loan pre-approval will show the developer that you are serious. Let him know that you are pre-qualified for the amount you are offering If sales volumes have dropped and there

are many unsold apartments in the vicin-ity, point this out to the developer and use the fact to your advantage. An unsold apartment will cost the developer more over time than lowering the price and sell-ing the unit quickly If market prices have fallen since the property was completed and several units remain unsold, a larger discount may be possible

If The Developer Remains Firm On His priceNegotiate for what you estimate to be a realistic price. If the developer refuses, don’t be surprised if you hear back from him a few days later, willing to reconsider your offer. There is greater flexibility in negotiating the extras versus the base sales price. Without making an obvious display of satisfaction, convey that you need to look at your numbers before you take a decision.

Your goal is to purchase a home - not to beat the developer down. Know when to walk away. Always remember that price isn’t the only negotiable instrument in your hand. Remember most developers hate to haggle, so gather all your negotiat-ing points into a single offer and position

it as a take-it-or-leave-it proposition. At the end of the day, there may be some proj-ects where the developer is simply not in the mood to negotiate on. If he remains adamant and you cannot agree on a better price for a flat for which you have other options, walk away.

Note that here are many factors that will influence the developer’s lowest ac-ceptable price. These include: The prevailing market conditions The developer’s financing pattern Whether he is in a rush to sell or happy to wait for a higher offer How much he paid for the land

If you think the price is far higher than current market prices, it is possible that the developer purchased the land during the market peak. In such a case, he will remain inflexible on his rate since he will not want to sell at a loss.

Typical Mistakes Buyers Make Not spending enough time to under-stand the developer Forgetting to do their homework Not negotiating in person Making ridiculously low counter-offers Making disparaging remarks about the project

Essential property negotiation SkillsA good negotiator: Knows how to listen Researches well to gets all the factsStays calm during the negotiation process Takes notes and makes realistic offer

A good negotiator does not allow the desire to own a certain property to become obvious during the negotiation process. Also, he or she does not to take anything personally and can therefore see opportu-nities objectively. Finally, a good negotia-tor always has other options, never re-veals weaknesses, plays his or her cards close to the chest and does not take any-thing for granted. F

property negotiation: Failing To prepare is preparing To Fail

Page 64: Financial Planning Lessons Financial Planning Lessons

Every month our resident expert on all things personal finance will answer all your queries related to the world of investments, taxation and financial management. The Personal Finance Advisor will be able to diagnose the health of your portfolio and offer better advice if your questions are precise, and the description of the ailments detailed. Write in to [email protected]

Sir,i am retiring this August. i expect to receive Rs 35 lakh in superannuation benefits. Where should i invest this amount to ensure that i get regular in-come, as well as capital appreciation?

-Raj Kiran, MumbaiDear Raj KiranPlease be extremely careful in investing this hard-earned money. Do not get taken in by the big prom-ises that investments agents of various kinds make, and they would come circling when they know you have a big sum at your disposal. There have been many cases where retirees are asked to invest in equities and equity oriented mutual funds which did not prove to be a good decision. Remember that equity and equity mutual funds are for the long term. It is for people who may not need the invested money for next 5-10 years.

In your case, it is would not be prudent to invest in high risk assets such as equities or property. Go for debt funds or government securities, or even the bank fixed deposits that provide slightly better rates for senior citizen. If you want to in-vest in equity, please invest a small part (say 20% of your money) in balanced funds.

For regular income, you can invest in monthly income plans which provide monthly cash flow. Please remember that any scheme that provides regular cash flow will not give more than 8% to 9% annual return. This is because the fund man-agers are extremely cautious in regular income plan. This is why they invest in risk free or low risk assets which give normal returns.

Sir,i require loan upto Rs 5 lakh to invest in a new busi-ness opportunity. i have form no. 16 and salary slips as proof of income. i receive monthly salary only in cash from employer. Please tell me whether i am eligible to get the loan since salary received is in cash. Also, what are other documents required and process to follow?

– Rahul Rao, PuneDear Rahul,As long as the employer is giving you a salary slip and you have form 16, the income is valid. You are eligible for a loan like anybody else. Some employ-ers pay salary in cash because it is convenient for them. So, your chances of getting a loan do not go down because of this.

Once you apply for a loan, the bank does its own due diligence regarding your income level, iden-tity, credit worthiness etc. You will have to submit the identity proof, residential proof, income tax certificates, salary certificate, bank statements etc. for the loan. Go ahead and apply. There is no problem with salary being received in cash.

Dear Sir,i have a housing loan on property from which i re-ceive rental income. Given that i am the sole owner of this property, is it possible that my wife takes the rent on this property and i can claim tax benefit on the principal repayment for the loan?

– Bharat Sheth, Ahmedabad

64 The Finapolis l July 2015

PeRSoNAL FINANCe

advisor

Page 65: Financial Planning Lessons Financial Planning Lessons

pERSOnAl FInAnCE ADVISORDear BharatIf the property is in your name, the rental will be counted as part of your income for which you need to pay tax. Legally, it doesn’t matter who takes the rent but in whose name the property is attached to.

Dear Sir,i have a mortgage loan of around Rs 7 lakh outstanding and the interest rate is 15.5%. This property is in my father’s name. is it possible to convert the outstanding amount in this mortgage loan to home loan so that interest rate is reduced and i can claim tax benefits?

– Karan Singh, Delhi

Dear KaranThis is very difficult. The only way you can transfer the home in your name is if your father gifts it to you. You can gift only what is yours. In this case, your father cannot do this because there are still a loan out-standing on the property and bank has a claim over it too.

You can, however, buy the property from your father by taking loan from bank and then you can pay the EMI and claim tax benefit. However, this requires your father to pay capital gain taxes on the sale of property to you. The capital gain taxes may not make sense now that only Rs 7 lakh is outstanding. Additionally, there may be other charges such as registration of prop-erty in your name, stamp duty etc. which must be paid. Moreover, this property will eventually be yours anyway because you are going to inherit it.

Hence the real cost of transferring the property in your name could exceed the benefits.

Sir,What are the options available to invest monthly in a gold asset? Does monthly invest-ment like SiP work while investing into any gold investment option to get benefit of volatility similar to mutual fund investments?

Shikha Purohit, ChandigarhDear ShikhaYou can invest in gold through gold mutual funds offered by fund houses or you can buy physical gold every month. In the latter case, you possibly have to open a locker in a bank so that you can place the gold in a

bank vault safely. This is not the ideal way to invest in gold for two reasons: one, there are always making charges in addition to the price of gold; two, you cannot buy gold worth a certain fixed amount every month.

In case of gold funds, you can invest in it just like you invest in mutual funds. You can start a SIP for a gold fund which allows you to invest a certain fixed amount every month. This is absolutely a safe way of investing in gold without worrying about the storage. It will also take care of fluc-tuations in gold prices.

Sir,i want to start investing for my children’s education. The investment tenure is 12 to 15 years from now. Please suggest how to go about this.

- Megha Shah, MumbaiDear MeghaIf the investment horizon is 12 to 15 years, go for equity mutual funds. Equity mutual funds invest in listed companies in the stock exchange. The risk is high because market fluctuates in the short term. How-ever, in long run market tends to give good returns and hence you will be able to build a good corpus in 12-15 years. The average

annual return can be anywhere between 10% and 15%.

Avoid ULIP plans for children. The re-turn on insurance schemes is very low. Moreover insurance schemes are not for building a corpus of fund. It is more of a safety net if an earning member of the family is no more.

At the same time, you can also take PPF. PPF is an excellent scheme where the inter-est paid is 8.7% and the interest is not tax-able. Moreover, you can invest up to Rs 1.5 lakh in PPF scheme. It is for 15 years.

Dear Sir,My 70-year-old mother earns a rental income of Rs 50,000 a month. What would be her best tax saving avenues? Given her age, she isn’t looking at long term investments. Please suggest.

-Ritesh Nagrani, DelhiDear Ritesh,For seniors citizens, the exemption of income tax is Rs 2.4 lakh per annum. Hence your mother will have to pay taxes on Rs 3.6 lakh only (Rs 6 lakh income – Rs 2.4 lakh exemption).

Moreover, to save taxes, your mother can invest in senior citizens saving schemes where the interest rate is more than nor-mal fixed deposit rates. Moreover, this is also tax free up to Rs 1.5 lakh. You can also save taxes on medical insurance. The claim in this case is up to Rs 30,000. Apart from that, any medical treatment for specific ailments can be claimed for tax deduction for up to Rs 60,000. F

65July 2015 l The Finapolis

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66 The Finapolis l July 2015

by invite

The correlation between share prices and fundamentals (e.g. earnings, dividends and book-value per share) takes utmost im-

portance for investor while making buy-ing or selling decisions. Price-to-Earnings (P/E) ratio, a relative valuation technique has always remained at the centre of at-tention of equity analysts and investors ever since the origin of discounted divi-dend growth model by Gordon and Shap-iro (1956). P/E ratio is the most popular and common valuation metric used by investors and analysts to assign an intrin-sic value to a stock.

P/E ratio measures the market value of a company relative to its earnings. It ex-presses the relationship between the cur-rent market price of a stock and same stock’s earnings per share (EPS). One can view the P/E ratio as a metric for gauging the future earning power of the firm. This ratio is supposed to tell investors how many years’ worth of current earnings a company will need to produce in order to arrive at its current market price of a stock. A company with identical earnings, having similar size, and belonging to same industry may have differences in their P/E ratios. There are many ways to find the intrinsic value of stock by using financial ratios, for example price-to-earnings ratio, price-to sales ratio, dividend yield and price to book ratio. P/E ratio is measured as dividing stock price by earnings per share, alternatively known as “Price Earn-ings Multiples”, it indicates how much investors are willing to pay for each rupee of firm’s earnings.

P/E = Market Value per Share / Earnings per Share (EPS)

In addition, it also reflects investor’s confidence and sentiment about compa-

ny’s future performance / influences on investment decision. P/E ratio may vary across sectors because of diverse growth prospects. Also, industries or sectors hav-ing companies with mature, stable and moderate growth potential have low P/E ratios compared to the sectors having relatively modern and fast-growing com-panies. However, in context of India which is part of emerging market, one needs to look at the P/E ratio with the overall macro economic factors to get the clear picture as Indian indices and stock

react more to the external factors than solely earnings.

High P/E = expensive stockIn the book “Security Analysis,” which was first published in 1934, the father of value investment, Ben Graham suggests that a P/E ratio of 16 “is as high a price as can be paid in an investment purchase in common stock.” But it isn’t always the case. Investors will pay higher price if the company has high growth opportunities and as a result it will have high P/E ratio; firms with low growth tend to have lower P/E ratio. Size of the firm is found to be positively related to firms P/E ratio. The P/E ratio also changes with the change in earnings. For example, if a company’s lat-est year’s earnings (or profits) per share stand at Rs 20, and its stock is trading at Rs 260, the P/E of this stock is 13 times. If the same stock moves up to Rs 360 while the earnings of the company remain at Rs 20, the P/E moves up to 18 timesShould you rely on P/E ratio?The P/E ratio is better indicator of the value of a stock than the market price alone. Due to simplicity and ease of use the P/E ratio is the most commonly used valuation metric. But, understand P/E ratio is not always reliable. There are plenty of reasons to be cautious of P/E based stock valuations. In general, it’s dif-ficult to say whether a particular P/E is high or low without taking into account growth rates of the company and that of the industry. The P/E multiple effectively penalizes companies for taking on lever-age which in some cases not bad for the future growth of the company. ConclusionIt’s recommended using multiple ratios to get a complete picture of financial perfor-mance and stock valuations. F

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

Price-to-Earnings ratio

Investors will pay higher price if the company has

high growth opportunities and as a result it will have high P/E ratio; firms with low growth tend to have

lower P/E ratio. Size of the firm is found to be

positively related to firms P/E ratio. The P/E ratio also changes with the change

in earnings

Page 67: Financial Planning Lessons Financial Planning Lessons
Page 68: Financial Planning Lessons Financial Planning Lessons

Karvy The Finapolis RNI No: APENG/2007/20461

Regd. No.: L II/RNP/H-HD-1087/2014-16

Published on 1st July 2015 Total No. of pages 68, including cover pages