Académique Documents
Professionnel Documents
Culture Documents
Yield
Stocks 11 with
Pers onal Finance Magazine Rs 30 20 March 2014
WILL SAHARA EVER
BECOME ACCOUNTABLE?
AAP GUNS FOR AMBANI;
WHAT ABOUT OTHERS?
UBI EXPOSES CORPORATE
GOVERNANCE HYPOCRISY
Pages 68
SUCHETA DALAL ON:
www.moneylife.in
INSURANCE 42 YOU BE THE JUDGE 49 FIXED INCOME 40 HEALTH 50
These stocks are recording
strong cash ows and are
reasonably valued. So, a price
rise would be a bonus, over and
above current high dividends
MONEYLIFE
FOUNDATIONS
LEGAL
RESOURCE
CENTRE
NEW LAUNCH
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I S S U E C O N T E N T S
20 March 2014
LETTER
FROM THE
EDITOR
Yield Matters
Disclaimer: Moneylife has a policy of not allowing its editorial staff to
buy and sell stocks that are written about in the magazine. All personal
transactions in individual stocks are subjected to internal disclosure rules.
MONEYLIFE | 20 March 2014 | 4
Current
Account
18
?
MONEYLIFE
QUIZ
T
here are many ways to screen, and pick,
stocks. One such way is through analysing
their dividend yield. However, merely picking
stocks based on high dividend yield could be
risky. This strategy would work only when
companies are filtered using other valuation
parameters and their management history. This is
where Moneylifes analysis comes in. We have not
only considered a companys dividend yield, but
since dividends are paid out of earnings, we have
considered sales growth, earnings growth, the
size of operations and so on. After factoring in all
these, we provide you with a list of 11 stocks that
may not only offer good income in the form of
dividends but capital appreciation as well.
Mutual funds come in many forms. Many
of them are designed only to garner funds from
investors. Dynamic equity funds belong to
this category. These are pitched at investors as
products that can time the markets. However,
evidence from the US (from where these strategies
are borrowed) shows that such schemes have
grossly underperformed. Are their Indian
counterparts headed in the same direction? If so,
is there a better way? Turn to our Fund Pointer
section to find out.
In her Crosshairs section Sucheta writes on
Subrata Roy of Sahara who has run his peculiar
empire for years without any regulator asking
any questionuntil his defiance of Supreme
Court became bizarre. She also writes on Arvind
Kejriwals strange tactic of targeting only some
businessmen, leaving out people like Vijay Mallya.
In her Different Strokes section, she questions
SEBIs corporate governance norms which will
not apply to the entire swathe of listed public
sector undertakings that have inflicted big losses
on investors. The fact that neither SEBI nor the
stock exchanges, who administer the corporate
governance code, have uttered a word about
the goings on at United Bank of India that have
mauled its share prices, shows that the norms
would be nothing but a sham.
Moneylife Foundation launched yet another
helpline for its members; this time for those
seeking legal advice. To know more about, or to
avail the facilities of, the Legal Resource Centre,
please visitlrc.moneylife.in. We have lined up
another helpline; expect to hear about it soon.
Debashis Basu
Cover Story
28
11 Stocks with High Dividend Yield
These stocks are recording strong cash flows and are reasonably
valued. So, a price rise would be a bonus, over and above
current high dividends. Jason Monteiro explains
Different Strokes
16
UBI Saga Exposes Many Warts: Why SEBIs corporate
governance norms are a sham
Ambani ki dukaan Includes Congress-BJP-Media
Kejriwal: What is Mr Kejriwals idea behind these barbs?
Defiant Sahara: Will Subrata Roy Finally Be Brought To
Book?
AAPs Glare: Whys Mr Kejriwal silent about the
massive loot of banks?
14
Chidambaram Brings Cheer to Education Loan
Borrowers
SEBI Wants Pension Money in Mutual Funds
SEBI Collates KYC Details of Nearly 20m Investors
FIIs Scale Back Emerging Markets Exposure
Your Money
21
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CONTENTS
Letters ............................ 8
Book Review ....................60
Money Facts ....................63
DEPARTMENTS
STOCKS
Positive Trend: We are adding
six new stocks to the portfolio
37 Long Term
38 Value Picks
List To Stagnate
Valuation Matters: Is the market
trying to anticipate Narendra
Modi as the PM?
36 Which Way
34 Street Beat
Narmada Gelatines: Steady
Growth
66
Help Animals,
Help Humanity
BEYOND MONEY
Appalled by the way people tend
to treat stray animals, Preeti Bhatt
decided to set up an organisation
especially for their protection at Pune.
Konica Bhatt tells us how it works
Mutual Funds
vs SEBI
22
SMART MONEY
Another new twist to mutual fund
regulationsas regressive as the
previous ones
UBI CD
Downgrade
40
FIXED INCOME
Top-rated Corporate Bond Yields
Sudden Jump in 10-Year G-Sec Yield
Options for Tax-free Bonds
Bank FD Rates
Shut Up, Or
Put Up
49
YOU BE THE JUDGE
What are some valid grounds of
complaint against your neighbour?
Using Behavioural
Analysis To Improve
Regulations
58
UKs Financial Conduct Authority
is using insights from behavioural
economics for consumer-focused
regulation
EARNING CURVE
Health Insurance
Steep Rise in Mediclaim Premiums
L&T General Medisure Super Top Up
Life Insurance
Tata AIA Mahalife Gold
Fine Print
INSURANCE
42
Insurance
Trends
48
Making Railways
Accountable
LEGALLY SPEAKING
National Consumer Commission
delivers a big blow for consumers
46
Auto
Mode
AUTO
Automatic manual transmission is the
new buzz in car market
FUND POINTERS
Dynamic Equity Funds,
Anyone?
24
Do they work? Can we do any better
than them with some other strategy?
ML FOUNDATION EVENTS
56
Moneylife
Foundation
launches its third
free helpline,
after Insurance
and Railways,
covering 10 areas
of interest to
individuals
Legal Resource Centre
Launched
Mo
Fou
lau
free
afte
and
cov
of i
ind
Launched
REAL ESTATE
Impact of Maharashtra
Housing Act
47
Restrictions on Buying Plantation
Land in Karnataka
UP To Regulate Real Estate Agents
Livinla Vida
Loca
52
If theres one city on earth that
knows how to live the crazy life,
its Madrid. Naveena Israni explores
the passion and vibes of this
effervescent city
TRAVEL
Science That Seeks
the Truth
50
Healthcare industry uses science like
a dogma. We need to open our minds
Pulse Beat: Medical developments
from around the world
HEALTH
Content.indd 4 3/1/2014 5:32:07 PM
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FACULTY EVALUATION BY
STUDENT RATING?
It is often said that what goes
around comes around. Success
is often ephemeral and one can
never take it for granted. If
success goes to your head
and encourages you to treat
people (read employees)
badly, then retribution will
not lag. A private university
in Bengaluru, having a
sprawling campus, started
attracting students with
a high-flying marketing campaign
and aggressive promotion. For some
time, their ploy worked. Students
from the north and east flocked to
this university and paid through
their nose to enrol in the various
programmes. The proof of the
pudding lies in the eating.
When these students graduated,
there were not many jobs for them
as per their expectations. Investment
in education cant be compared to
investment in a business that returns
on investment will start flowing
soon after. It was a different matter
that the quality of the students
enrolled by this university was
nothing great as the only eligibility
criteria for getting admission was a
bagful of cash. Once students pay
astronomical sums as fees, they
start behaving like customers. Any
faculty, who was strict with them,
was given a poor performance rating
and, within no time, the university
started sacking faculty members.
As they were good paymasters,
the faculty got attracted to the
university just like bees get attracted
to flowers. But soon the cat was
out of the bag. Students
were ruling the roost and
dictating terms.
A former colleague of
mine who had shifted
base to Bengaluru got an
opportunity to teach in
this university as a visiting
faculty. His son had got
a job in Mindtree Ltd and the
family shifted based from Mumbai
to Bengaluru. But his experience
was anything but satisfactory. He
said, Mind-blowing infrastructure
and pathetic quality of students
students who are not interested in
learning anything, yet they have
so much dominant power. Soon
enough, his contract was terminated.
This incident happened two years
ago when the university was
glowing and beaming with heavy
rush from students for all their
programmes. Two years down the
line, the university is struggling to
attract students
and is doing
aggressive
marketing to
attract students.
In the past
two years, the
university blindly
chucked out
many faculty
members simply
on the basis of
performance
RNI No: MAHENG/2006/16653
Debashis Basu
Editor & Publisher
editor@moneylife.in
Sucheta Dalal
Managing Editor
sucheta@moneylife.in
Editorial Consultant
Dr Nita Mukherjee
nitamuk@gmail.com
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Editor: Debashis Basu
MONEYLIFE | 20 March 2014 | 8
Letters
Editor
to the
Volume 9, Issue 2
7 March 20 March 2014
A
am Aadmi Party (AAP) leader
Arvind Kejriwals virulent
attack on media houses, and their
alleged connections with Mukesh
Ambani of Reliance Industries,
got the Editors Guild of India
agitated enough to note: with
concern the growing attacks
and unsubstantiated charges
levelled against the media by
political leaders and public figures
dissatisfied with the coverage of
their activities or with criticism
from the media. Specifically,
the editors were distressed at
General VK Singhs use of the term
presstitutes to describe journalists
and found it disquieting that
Arvind Kejriwal attributed corrupt
motives to the media that criticised
him. While the Guild is correctly
agitated about abuse and vague,
unsubstantiated accusations of
corrupt motives attributed to the
media, it does not spare a thought
for others who are in the crosshairs
of these leaders and public figures.
Journalism, as it was taught to
us, required charges to be backed
by facts, preferably with documents.
Not any more. While media houses
make vague references to shoot &
scoot politics, journalism today is
about reporting and relaying every
allegation without any attempt to
check facts even afterwards.
What is Mr Kejriwals
calculation behind these allegations?
As someone doing investigative
work for nearly three decades, I
know that crony capital, with its
lobby groups, wields plenty of
clout and has a nice way cutting off
access, funding and opportunities
for those who dare to be impartial.
On the other hand, as one senior
editor told me, if one decides on a
few high-profile targets and leaves
others alone, there is a good chance
of building a powerful support base
among those who privately dislike
the extraordinary influence of one
business house across the corporate
and political spectrum.
Mukesh Ambanis enormous
clout comes from having several
close aides in both houses
of parliament, in addition to
funding political parties and a
section of the media. Reliances
Foundations and CSR (corporate
social responsibility) vehicles also
offer a ready berth to powerful
politicians and their aides who
are out of power. This makes the
group appear omnipotent. A top
bureaucrat once told me that,
in the 1980s, when Dhirubhai
Ambani headed Reliance, people
used to ask, who is an Ambani
person; these days, under Mukesh
Ambani, the question is who isnt
an Ambani person because that list
may be significantly shorter.
The positive impact of Mr
Kejriwals attack on Mukesh
Ambani is that it has shaken the
group and its acolytes from their
complacency. But will it force the
glitterati and chatterati to choose
sides, or will they profess support
to AAP, while continuing to enjoy
Mr Ambanis largesse?
AAP probably calculates that
Mr Kejriwals courage in taking
on the Ambanis will ensure him
support from all sections including
the salaried middle-class working
in clean information technology
companies and other professionals
who desire to end crony capitalism
without a clear plan or strategy
about how to do it.
Ambani ki dukaan Includes Congress-
BJP-Media Kejriwal
What is Mr Kejriwals idea behind these charges?
Crosshair.indd 2 2/28/2014 8:33:26 PM
A
rvind Kejriwal is, without doubt,
one of the sharpest minds on
the political scene today. His guerrilla
tactics of destabilising established
power centres has won him an
impressive victory in Delhi and his
anarchist ways and disregard for
rules has only increased his following
among disenchanted Indians who want
change at any cost. His followers are
uninterested in facts and details. So, if
one asks Mr Kejriwal why target Mukesh
Ambani alone and remain silent about
others, he could well argue that he will
do what he can and it is for others to
take up the rest.
He has probably calculated that
training his guns on public-private
partnerships in bijlee and paani will
yield better political dividends than
issues that do not affect the aam
aadmi directly, or are less catchy. But
even taking all these calculations into
account, one cannot help wondering
why Mr Kejriwal is silent about the
biggest source of the loot of public
money and the watering hole of all
dubious capitaliststhe frightening
amount of bad loans run up by public
sector banks.
In this context, one also wonders
about the silence on the Rs7,000-crore
largesse, in the guise of corporate debt
restructuring, handed to pepper spray
Rajagopal, the founder of the flying
Lanco group, who has run up huge
losses and gets bank funding with ease.
There is similar silence about Vijay
Mallya of Kingfisher Airways, who also
owed Rs7,000 crore to Indian banks.
One could list many more who are not
in AAPs crosshairs. But one cant help
wondering why they are not.
15 | 20 March 2014 | MONEYLIFE
AAPs Glare
Whys Mr Kejriwal silent
about the massive loot of
banks?
W
ill Subrata Roy, chief
worker of the Sahara group
have to be arrested to ensure his
appearance in Supreme Court (SC)
on 4
th
March? Will he, finally,
understand the gravity of an
unprecedented non-bailable warrant
(NBW) issued by the SC and make
an appearance without coercion?
No. He has once again, employed
the best legal brains in India to
come up with more delaying tactics.
Most ordinary persons would
not have dared to defy the SC
once it had angrily rejected his
plea for exemption from personal
appearance, especially when
he already faces restrictions on
travelling abroad. However, the
extraordinary Sahara saga that is
being played out in multiple courts,
for over three years, defies every
rule in the book about fear and
respect for judicial proceedings.
Even the NBW does not seem
to have woken up this strange
man with powerful friends among
all of Indias movers and shakers.
Immediately after the SC issued a
NBW, the Sahara group released
a letter from Sahara Hospital
claiming that Mr Roy could not
leave the bedside of his ailing
mother. In effect, the man who
usually flies private charters or
helicopters could not leave the
Hospital even for a couple of hours
to remain present in court! The
SC also has been extraordinarily
patient with Subrata Roy. Its
path-breaking order asking him to
refund Rs20,000 crore to investors
was back in August 2012.
That trial itself was marked
by Saharas audacious strategy
of making defamatory and
contemptuous statements against
the Securities & Exchange Board
of India (SEBI) through full-page
advertisements. This stopped only
after SEBI, finally, hit back when
Sahara went too far and called
it a sarkari gunda. Meanwhile,
Saharas battery of lawyers kept
trying to delay compliance though
endless appeals.
Until the SC put Saharas claims
about the funds collected, repaid
and the identity of its investors
under the lens, none of Indias
investigative agencies, nor the
Reserve Bank of India (RBI), had
dared to examine the endless source
of a large gush of money.
There is also no clarity on what
the group has paid in terms of
service tax, income tax or to the
provident fund, although it claims
to employ hundreds of thousands of
people. Even today, the SC is only
looking at two specific companies
that raised over Rs20,000 crore
through a synthetic instrument
called optionally fully convertible
debentures (OFCDs) that were
made to appear like financial paper
that was under regulatory scrutiny
and oversight.
As Moneylife has written earlier,
nearly Rs20,000 crore raised by the
two Sahara realty entities was to be
managed by a tiny partnership firm
of the promoters called M/S Sahara
India. The documents submitted
to the Supreme Court show this
clearly; but it would not be a
surprise if all the money, claimed
to be raised by the Sahara pariwar
from tiny investors, is similarly
controlled.
How has Sahara avoided
investigation and scrutiny by
our revenue, intelligence and
investigation agencies over the
decades? That is a mystery that
even a SC order may not solve.
Maybe Arvind Kejriwal can.
Defiant Sahara
Will Subrata Roy Finally Be
Brought To Book?
Crosshair.indd 3 2/28/2014 8:33:52 PM
O
n 13
th
February, the Securities & Exchange
Board of India (SEBI) revised its corporate
governance code, for the third time, making it
stricter. The new code, effective October 2014, expects to
empower the board to ensure legal and ethical conduct of
management. It also wants the board to evaluate, reward
and, if necessary, remove senior management and ensure
succession planning. The code, says an academics review,
will create an empowered board
that is always vigilant, as opposed
to a passive board that usually
gets active only during a crisis.
This strict code, with many
laudatory provisions, will apply
to all companies listed on our
stock exchanges. Or will it? Look
closely, and you can see that none
of the new provisions will apply
to the entire swathe of listed
public sector undertakings (PSUs)
that have inflicted big losses on
investors. This is evident from
the fact that neither SEBI nor the
stock exchanges, who administer
the corporate governance code
through their listing agreement
with companies, have uttered
a word about the goings on at
United Bank of India (UBI) that
have mauled its share prices.
On 22
nd
February, its chairman
& managing director (CMD),
Archana Bhargava, suddenly
opted for voluntary retirement
citing health reasons. The finance ministry instantly
accepted her application and allowed her to vanish
from public view; she has not responded to our queries.
Ms Bhargava was allowed to opt for voluntary retirement
after Reserve Bank of India (RBI) governor, Dr Raghuram
Rajan, formally asked the government to remove her and
supersede the entire board of the Bank.
Four days after Ms Bhargavas exit, UBIs board
remains paralysed and unclear about its own future; the
Bank is being jointly run by two executive directors.
Anonymous sources, quoted in media reports, say that the
board is unlikely to be superseded, despite the banking
regulators recommendation, because it is a politically
sensitive time. So, how will SEBIs new corporate
governance code help UBI investors who, at the very
least, are entitled to a proper disclosure of facts from the
board of directors? Do PSU boards have truly independent
directors or empowered audit
committees? Will they be exempt
from the tough new norms and
punishments prescribed by the
SEBI code and the new Companies
Act? The answer is: Yes.
Someone like Rajiv Takru,
secretary (financial services),
ministry of finance, will always
call the shots at listed PSU banks.
Management succession and
remuneration will never be within
the purview of these boards;
but government appointees will
continue to wield enormous
influence on behalf of their
political masters, crony capitalists
and influence-peddlers. Investors,
like those of UBI, who have lost
over 70% of the value of their
holdingthe share price declined
from Rs85 in January to around
Rs25 (at the time of writing)
wont even know who to demand
answers from. Their source of
information will continue to be
media reports quoting anonymous sources.
Consider another angle. Reliable sources in the
banking industry and the Bank say that Ms Bhargava
may have exaggerated the bad loans below Rs10 lakh.
For this, she blamed the core banking software (supplied
by Infosys Ltd) which was unable to detect these. She is
also accused of reckless lending by her own senior officers.
These sources say that she was bent on declaring the
entire portfolio, running into over Rs2,000 crore, as non
MONEYLIFE | 20 March 2014 | 16
B
alanced funds or dynamic
funds, also loosely known
as tactical asset allocation
funds, have a strong logic, at least
theoretically. It goes something
like this: It is not advisable to try
to time the markets. Balanced
schemes provide long-term capital
appreciation with the cushioning of
debt. If not this, then dynamic funds
would be a good option as they are
designed to switch easily between
equity and debt, depending on the
market conditions. Both categories
of schemes create the notion of
reduced volatility, with a dash of
prudence (balanced fund) or timing
skills of the fund manager (dynamic
funds), something that any average
saver would easily fall for.
But do these schemes truly
provide savers with what they are
looking for? Balanced mutual fund
schemes invest around 65%-85%
in shares of listed companies and
the balance 15%-35% in debt
instruments. Dynamic plans free
fund managers from the constraints
of having to stay fully invested at all
times. They can invest the assets of
the portfolio fully in equity or fully
in debt, according to their market
sense. Balanced schemes have limited
flexibility and are suggested for a
period of five to 10 years.
Moneylife has analysed these
schemes in detail in the past (Fund
Pointer, Moneylife 30 May 2012).
We have found that most balanced
schemes are no different from equity
diversified schemes that invest 80%
or more of their assets in equity.
Well, they have to invest at least
65% in equities, to be eligible for
tax-free long-term capital gains. The
few schemes that have done well in
this category have probably done
so because of better performing
stocks in the portfolio than due to
their asset allocation which has been
similar to that of other schemes in
the same category.
What about dynamic funds
based on the (false) hypothesis that
fund managers can move in and out
of stock even as fund companies
preach that timing the market is
impossible?
While some of the schemes
have done well, it was difficult
to say whether these schemes
would continue to perform well,
based on their brief track record
of performance (Fund Pointer,
Moneylife, 20 March 2013).
However, by investing in a dynamic
scheme, you not only expect fund
managers to move in and out of
stocks and bonds as an asset class
but you also expect them to pick the
right stocks and bonds.
Lets look at what this means.
Lets assume, for a moment, that
fund managers skills are hard to pin
down and much of the performance
is attributable to luck. If so, by
investing in dynamic funds,
you are combining two
different bets.
One, the fund manager
would be skilful or lucky to
move in and out of stocks and
bonds; and, two, he would be skilful
or lucky to pick the right bonds
and stocks. If you assume that the
probability of your fund manager
getting it right is 50%
in both cases, the
joint probability of
him getting both
right, falls to as low
as 25%.
Anecdotally, we know that doing
both, together, is a difficult task,
especially since
market-timing
calls for an
enormous
amount of
research
that fund
companies
dont
MONEYLIFE | 20 March 2014 | 24
COVER STORY
H
igh dividend yield stocks certainly have
a place in portfolio construction; but
the underlying price performance and
relative strength are factors as vital as
dividend. It is important to own a stock for its total
return performance, not just for the dividend.
When we buy a stock, we focus
on possible price appreciation,
that is, capital gain. However, the
most rational measure of returns must
include dividends. Indeed, dividends can make
a signicant difference to your returns over the
long term. In our Cover Story (Wealth Creators, 9
January 2014), which analysed the total shareholder
return of the top 500 companies, dividends, on an
average, contributed 14% to the total returns. For
Hawkins Cookers, which ranked fth on the top 500
list, dividend yield contributed 10% to the total
returns. Therefore, apart from the huge price
appreciation, dividends provided a decent
income as well. In companies, like EID Parry,
dividend contributed 25% and, for Karnataka
Bank, dividend contributed 50% to the total
returns. We tend to forget the important role of
dividend in total returns over the long term.
Dividend is the income one gets, usually regularly,
for owning a stock. Companies with strong cash ow
and commitment to investors generally pay decent
dividends and steadily increase them over years. You
can judge the quality of management by consistent
and high dividends. In fact, the prospects of a stock
are judged by estimates of high or rising dividends.
Increasing, or even continued high dividends, show
that the management genuinely believes that the
MONEYLIFE | 20 March 2014 | 28
These stocks are recording
strong cash ows and are
reasonably valued. So, a
price rise would be a bonus,
over and above current high
dividends. Jason Monteiro
explains
High Dividend
Yield
Stocks 11 with
Cover Story.indd 2 3/1/2014 5:04:40 PM
29 | 20 March 2014 | MONEYLIFE
COVER STORY
company is on strong growth path. Why would it otherwise
give away its earnings to shareholders? Moreover, dividends
are paid by such companies, regardless of market gyrations,
as long as the fundamentals are strong. In other words, if
you invest in a company that has a good track record of
management, healthy cash ows and good dividend history,
and hold it over the long term, the chances are that your
returns will be magnied due to the dividend component.
Therefore, it makes sense to pay attention to dividends.
Usually, dividends form a small part of the price we pay.
For instance, if you buy a share of Nestl today, it would
cost you Rs5,000. It paid a dividend of Rs48.5 per share in
2012-13, i.e., just 0.97% of the price. In nancial jargon,
this is called the dividend yield. What if the dividend yield
is high? It means that the dividend is larger for the price
you pay. Unlike Nestl, take a company like Corporation
Bank. It paid a dividend of Rs23.5 when the market price
was Rs400. The dividend yield is 6%. So you are getting
much more dividend from Corporation Bank for the price
you pay, compared to the Nestl stock. Conversely, the
price is low for the dividend the company is paying out.
Many investors use dividend yield to shortlist low-priced
stocks for investing.
Does this method make sense? Dividend yield can lead
you into a trap, if youre not careful. Dividend paid is
historical data, while price reects the future. There may
be a reason for the price to be low that may come to light
later, leading to still lower prices. If the price drops, and
the dividend paid out remains the same, the dividend yield
will be even higher. But what you gain in dividend, you
lose in price. Worse, a company that has run into problems
may lower the dividend, destroying the reliability of the
data that attracted you in the rst place.
As this example shows, the dividend yield strategy to
picks stocksas, indeed, other stock-picking methods
will not work when applied mechanically. Dividend
yield strategy works well when companies are ltered
appropriately. This is where Moneylifes analysis of
dividend yield comes in.
Companies with a high dividend yield may be good
investments if their fundamentals do not deteriorate.
Dividends are paid out from the cash which comes from
earnings. Therefore, one should look at factors like sales
growth, earnings growth, the size of operations and so on,
to ensure that the high dividend yield you are seeing today
is not a chimera. One should be careful when one indicator
looks good and the rest are dubious. Thats a sure sign
that not all is right with the company. After all, you dont
want to be stuck with a stock that offers good dividend but
no capital appreciation. The company must be running a
business that is growing as well. We have factored in all
these and created a method that gave us a shortlist of stocks
with high dividend yields worth investing in. Of these, we
have selected 11 stocks including four
public sector companies.
1. Accelya Kale Solutions (DY:
11%): Accelya Kale Solutions
offers software solutions for
airlines and travel industry.
The company caters to over 200
airlines customers to streamline
their nancial processes; they also
Yield Matters
Company Name Dividend Yield 5-qtr Sales Growth 5-qtr OP Growth OPM RoNW * RoCE **
Accelya Kale Solutions 11% 29% 94% 40% 105% 123%
Akzo Nobel India 10% 8% 5% 8% 14% 12%
Andhra Bank 9% 13% -4% 18% 8% NA
Syndicate Bank 8% 8% 2% 18% 18% NA
Infinite Computer Solutions (India) 7% -1% 6% 30% 17% 17%
Lumax Auto Technologies 6% 3% -9% 7% 16% 19%
Ador Fontech 6% -9% -30% 12% 22% 18%
Tourism Finance Corporation of India 5% 14% 19% 44% 16% NA
Cheviot Company 5% -2% -22% 12% 9% 9%
GIC Housing Finance 5% 17% 20% 21% 16% NA
Swaraj Engines 5% 15% 9% 14% 33% 37%
* - based on trailing past four quarter net profit
** - based on trailing past four quarter EBIT
OP - Operating Profit, OPM - Operating Profit Margin, RoNW- Return on Net Worth, RoCE- Return on Capital Employed
Cover Story.indd 3 3/1/2014 5:05:11 PM
provide them with insights on business performance, using
decision support tools and data analytics. The company
is a strategic partner to IATA and provides expertise in
revenue accounting, audit & revenue recovery, credit card
management, miscellaneous billing and decision support
& analytics.
The airlines business is complex; competition from
other service-providers is intense and, therefore, the focus
is on innovation, increased productivity and improved
quality. The company has over 1,500 employees, spread
across various nationalities and geographies. In terms of
revenues, 30% of its sales comes from Middle East and
Africa; America contributes 29% to revenues and 25%
comes from Asia-Pacic and India. The remaining 16%
of the revenues comes from the European region.
Net prot of Accelya Kale Solutions rose a huge
64.63%, to Rs31.33 crore, in the quarter ended December
2013 as against Rs19.03 crore during the quarter ended
December 2012. Sales rose 4.10%, to Rs65.32 crore, over
the same period. The companys sales growth, over the past
ve quarters, averaged 29%, while operating prot growth
averaged 94%. The company has an average operating
prot margin of 40% over the ve quarters, one of the
highest in the industry. The stock is reasonably priced,
even after the recent run-up. Its market-cap is 3.74 times
sales and 9.99 times operating prot. The company has
a fantastic RoNW (return on net worth), of 105%, and
a RoCE (return on capital employed) of 123%.
2. AkzoNobel India (DY: 10%): AkzoNobel India
manufactures and markets a wide range of coatings and
specialty chemicals. Its decorative paints business-line
comprises the Dulux brand of paints for interior and
exterior decoration and protection. AkzoNobel NV is
headquartered in Amsterdam (the Netherlands) and is a
Fortune Global 500 company. Earlier a part of Imperial
Chemical Industries (ICI), the company
has been present in India for over
100 years and is a signicant
player in the paints industry.
The specialty chemicals
business in India deals in more
than 30 products grouped
under organic peroxides, metal
alkyls and polymer additives to
pharmaceutical companies, polymer
producers, composite and rubber industry. Sales rose
8.40%, to Rs643.93 crore, in the quarter ended December
2013 as against Rs594.05 crore during the quarter ended
December 2012. However, net prot declined 46.65%,
to Rs27.01 crore, over the same period due to increase in
other expenses for certain services received and higher raw
material costs. The companys sales growth over the past
ve quarters averaged 8% while operating prot growth
averaged 5%. Growth is slow and valuation is expensive.
The market-cap is 21 times operating prot. The company
has an RoNW of 14% and an RoCE of 12%.
3. Andhra Bank (DY: 9%) Andhra Bank is a mid-sized
public sector bank. The Bank has a network of over 1,880
branches, two-thirds of which are in Andhra. Total business
increased to Rs2.23 lakh crore in FY12-13, from Rs1.90
lakh crore in FY11-12, registering a growth of 17.5%. Total
deposits increased by 17.0%, to Rs1.23 lakh crore from
Rs1.05 lakh crore, over the same period. Gross bank credit
increased by 18.2% to Rs1 lakh crore as on 31 March
2013, from Rs84,684 crore as on 31
March 2012. The Bank has done
considerably well in key nancial
ratios, given the performance
of the industry as a whole.
Net interest margin stood at
3.21% in FY12-13 compared
to 3.67% in the previous year.
Cost to income ratio stood at
42.40%. Earnings per share (EPS)
stood at Rs.23.04 and book value per share increased
from Rs.126.36 in FY11-12 to Rs.144.67 in FY12-13.
However, the gross NPAs rose to 5.56% in Q3FY13-
14 from 3.66% in Q3FY12-13 while net NPAs climbed
to 3.65% from 2.29% in the same period, signalling
deteriorating asset quality amid higher interest rates. The
Banks sales growth over the past ve quarters averaged
13%, while operating prot growth averaged -4%. Quite
possibly, the worst is over for the government banking
sector which is suffering from bad decisions and adverse
external environment. One of the crucial measures of
banks is price to book value. The rule of thumb is that a
price to book value of less than 1 signies undervaluation.
Andhra Banks price to book value is 0.36 times.
4. Syndicate Bank (DY: 8%): Syndicate Bank is a south-
based, mid-sized public sector bank with 3,143 branches,
mostly in the south. The Banks net prot declined 25.20%,
to Rs380 crore in Q3FY13-14 as
against Rs508 crore in Q3FY12-
13, while advances increased
from Rs1.37 lakh crore as at
Q3FY12-13 to Rs1.57 crore
as at Q3FY13-14, up 15.17%.
Gross NPA ratio stood at
2.80% in Q3FY13-14 as against
2.31% in Q3FY12-13 due to high
slippage in the past nine months. Net
interest margin was at 2.76% in Q3FY13-14 as against
3.29% in Q3FY12-13. The Bank has an RoNW of 18%
and a price to book value of 0.46 times.
COVER STORY
Key Financials
Unbiased & Methodical Stock Picking that Works!
110%*
MONEYLIFE STOCK IDEAS
THAT WORK
(MPS)
Exit Price Rs240
On 16 January 2014
Recommended Price Rs114
Moneylife Issue 19 September 2013
* Non- annualised returns
Stock-Streetbeat.indd 2 3/1/2014 5:56:38 PM
R
isa International Limited was
known as Govindji Trikamdas
Exports. In 2011, a new management
took over and began to diversify into
trading. Over the past three quarters,
the company has shown a substantial
growth in revenues. Revenues for
the December 2013 quarter have
grown to Rs45 crore from nil in the
corresponding period last year. Over
96% of the revenues have come from
trading in fabrics.
Over the past 10 months, the stock
price shot up by more than five times,
to Rs988 as on 19 February 2014
from Rs184 as on 15 April 2013. But
is it because the company is showing
better financial performance? In FY12-
13, it reported sales only in the last
quarter of the financial year, of Rs3.08
crore and a net profit of Rs35 lakh; in
FY11-12, the company had reported nil
sales. The stock is quoting at a price/
earnings ratio of nearly 900 times.
In the past, the company has
been suspended for not complying
with the listing agreement. It has also
been pulled up for not submitting its
shareholding pattern and corporate
governance report.
investment that is
not subject to market risks
Attractive gifts, invitation for
events and free online help.
For a subscription offer that is
unique, look for a form else-
where in this issue or on our
website at www.moneylife.in
STREET BEAT WHICH WAY
At a val uat i on
l evel of 14 t i mes
(19,000), t he Sensex
woul d st ar t t o
l ook cheap. Bel ow
18,000, i t woul d be
a sol i d bar gai n
Medium-term:
Long-term:
Valuation Matters
Is the market trying to anticipate Narendra
Modi as the PM?
MONEYLIFE | 20 March 2014 | 36
Which way.indd 1 2/28/2014 9:27:43 PM
37 | 20 March 2014 | MONEYLIFE
STOCKGRADER LONG TERM
O
ur long-term portfolio has moved up with the
market; 19 out of 26 stocks have closed positive.
The earnings season is almost over. Our portfolio was
48% in cash until now. Following the December quarter
results, we are adding six stocks to the portfolio, bringing
down the cash level to 36%. Zydus Wellness, Hindustan
Unilever, Nestl, Ranbaxy, Hexaware Technologies and
Hindustan Zinc are the new additions. Shree Cement (up
10%) was the top gainer followed by Sun TV Network
(up 9%). Among the seven stocks at the losing end,
NMDC (13%) declined the most and was followed by
Mindtree (3%).
List To Stagnate
STOCKS VALUE PICKS
MONEYLIFE | 20 March 2014 | 38
How To Use the Data: This list is mainly designed to reduce your effort while making a shortlist of
value picks. Stocks have been sorted and displayed according to a composite rank of high return on
net worth and low valuation. You cannot buy these stocks mechanically. To actually select a stock
to buy, you may want to glance at other parameters and apply your own understanding of a sector
or a company. Remember, for value investors, there is something called a value trap. This refers
to a situation when an attractive company is reasonably valued but its internals are deteriorating
which is probably why the stock was cheap to start with. One way to avoid this is to consider sales
growth; so look at the ones with strong sales growth. Also, keep an eye on the tax payout, which is
a measure of corporate governance. The best combination is great financials, low valuation and a
rising stock price. One should buy in an uptrend, though a flat trend of a value stock is perfectly fine
too. A value stock in a strong downtrend is best avoided. Remember, price could go down due to
an adverse event relating to the company or a severe market decline; in either case you dont want
to catch a falling knife.
Company Results
Declared
ML Sector Latest Qtr
Revenue
Growth
Average
3-Qtr Revenue
Growth
Valuation
(MC/OP)
**
Return on
Net Worth
(%) *
Tax
Rate
Price
Trend
Indo Count Inds Dec-13 Textiles 38% 32% 0.70 141% 13% Up
Maral Overseas Dec-13 Textiles 20% 19% 1.05 149% 0% Flat
Adi Finechem Dec-13 Chemicals 41% 17% 1.86 48% 34% Up
Morarjee Textiles Dec-13 Textiles -2% 12% 1.39 43% 0% Up
Indian Terrain Fashions Dec-13 Retail 111% 69% 2.84 48% 14% Up
Sutlej Textiles & Inds Dec-13 Textiles 13% 12% 1.05 36% 17% Up
Suven Life Sciences Dec-13 Pharma 91% 116% 3.83 78% 6% Up
TVS Srichakra Dec-13 Auto Components 15% 11% 1.79 35% 25% Up
Centum Electronics Dec-13 Engineering 60% 68% 3.30 45% -27% Up
Ceat Dec-13 Auto Components 15% 11% 1.87 35% 31% Up
AVT Natural Products # Dec-13 Industrial Intermediates 20% 4% 3.13 38% 33% Up
Chaman Lal Setia Exports Dec-13 Foods & Beverages 21% 52% 0.91 30% 31% Up
MPS Dec-13 Education 24% 14% 4.17 47% 21% Up
RS Software (India) # Dec-13 Software & IT Services 24% 19% 3.17 38% 24% Up
Igarashi Motors India Dec-13 Auto Components 34% 26% 2.36 34% 27% Up
Jayant Agro-Organics Dec-13 Farm & Farm Inputs -40% -52% 1.52 28% 29% Up
Alkyl Amines Chemicals # Dec-13 Chemicals 9% 20% 3.11 33% 33% Up
Fluidomat # Dec-13 Engineering 0% 0% 4.23 37% 33% Up
Heritage Foods # Dec-13 Foods & Beverages 8% 6% 4.40 38% 22% Flat
Vardhman Textiles Dec-13 Textiles 31% 28% 1.73 27% 29% Flat
Munjal Auto Inds # Dec-13 Auto Components 25% 13% 2.89 30% 5% Up
KRBL Dec-13 Foods & Beverages 30% 26% 2.19 27% 27% Up
Atul Auto # Dec-13 Auto 19% 19% 5.35 39% 31% Up
Indag Rubber # Dec-13 Auto Components 0% -1% 4.47 34% 24% Flat
Shivam Autotech Dec-13 Auto Components 18% 9% 1.55 25% 11% Up
Vikram Thermo (India) # Dec-13 Pharma 23% 24% 4.26 32% 33% Down
Balkrishna Industries Dec-13 Auto Components 25% 7% 3.59 30% 34% Up
Gujarat Gas Co # Dec-13 Oil & Gas 2% 0% 6.47 39% 30% Down
IL & FS Investment Managers Dec-13 Financial Services 0% 9% 8.21 51% 31% Flat
Granules India Dec-13 Pharma 51% 41% 2.20 25% 32% Up
Stocks Value Pick.indd 2 3/1/2014 5:25:28 PM
STOCKS VALUE PICKS
39 | 20 March 2014 | MONEYLIFE
Ajanta Pharma # Dec-13 Pharma 31% 36% 8.56 50% 38% Up
Atul Dec-13 Chemicals 31% 14% 3.97 28% 30% Up
VST Tillers Tractors # Dec-13 Farm & Farm Inputs 31% 39% 4.51 30% 30% Up
Aurobindo Pharma Dec-13 Pharma 33% 30% 4.93 31% 11% Up
Munjal Showa # Dec-13 Auto Components 6% 0% 2.30 24% 14% Up
Mayur Uniquoters Dec-13 Auto Components 30% 23% 8.54 43% 32% Up
Rural Electrification Corp # Dec-13 Financial Services 24% 27% 3.31 26% 26% Flat
Alembic Pharmaceuticals # Dec-13 Pharma 29% 25% 9.64 48% 21% Up
Eclerx Services Dec-13 Software & It Services 28% 24% 10.59 55% 18% Up
Benares Hotels Dec-13 Hotels 16% 13% 3.03 24% 31% Flat
Accelya Kale Solutions # Dec-13 Software & It Services 4% 16% 11.62 105% 32% Up
Vinati Organics # Dec-13 Chemicals 21% 31% 7.13 33% 33% Up
Narmada Gelatines # Dec-13 Chemicals 9% 7% 1.88 22% 29% Up
Ambika Cotton Mills # Dec-13 Textiles 36% 25% 1.34 21% 24% Up
Symphony Dec-13 Consumer Durables 29% 79% 10.58 44% 29% Up
VST Industries # Dec-13 Lifestyle & Leisure 20% 18% 10.58 44% 31% Flat
Zensar Technologies Dec-13 Software & IT Services 3% 8% 7.51 33% 29% Up
Jammu & Kashmir Bank # Dec-13 Banks 11% 10% 3.91 24% 31% Up
La Opala RG # Dec-13 Glass 14% 13% 9.59 37% 29% Up
Vakrangee Dec-13 Software & IT Services 26% 21% 7.48 31% 27% Up
Suprajit Engineering # Dec-13 Auto Components 25% 14% 5.88 28% 28% Up
Power Finance Corp Dec-13 Financial Services 24% 26% 2.69 22% 27% Up
Ahmednagar Forgings Dec-13 Auto Components 74% 55% 0.83 20% 29% Up
Supreme Industries # Dec-13 Plastics 20% 16% 9.27 35% 33% Up
Yes Bank Dec-13 Banks 19% 26% 5.43 27% 32% Down
Syndicate Bank Dec-13 Banks 12% 7% 1.77 20% -28% Flat
Hexaware Technologies # Dec-13 Software & IT Services 25% 13% 9.12 34% 16% Up
Tata Elxsi Dec-13 Software & IT Services 31% 25% 7.68 31% 36% Up
Wim Plast # Dec-13 Plastics 15% 19% 4.57 24% 27% Up
DCM Dec-13 Textiles 15% 19% 2.53 21% 28% Up
Hero MotoCorp # Dec-13 Auto 11% 7% 11.54 43% 16% Flat
Finolex Industries Dec-13 Petrochemicals 6% 5% 6.10 27% 30% Up
CCL Products (India) Dec-13 Foods & Beverages 0% 5% 4.09 23% 32% Up
Acrysil # Dec-13 Consumer Durables 31% 35% 5.67 26% 23% Up
Triveni Turbine Dec-13 Engineering -20% -17% 13.70 56% 32% Up
Tech Mahindra # Dec-13 Software & IT Services 181% 165% 13.00 55% 23% Up
Muthoot Finance Dec-13 Financial Services -12% -4% 3.28 22% 33% Up
Ratnamani Metals & Tubes Dec-13 Steel Products 28% 9% 2.34 20% 33% Up
LG Balakrishnan & Bros Dec-13 Engineering 5% 5% 1.68 19% 20% Up
Amara Raja Batteries # Dec-13 Auto Components 13% 18% 9.55 33% 32% Up
Torrent Pharmaceuticals # Dec-13 Pharma 11% 19% 11.66 40% 18% Up
Excel Crop Care Dec-13 Farm & Farm Inputs 34% 29% 5.37 25% 29% Up
Indraprastha Gas Dec-13 Oil & Gas 20% 19% 4.82 24% 33% Down
Uco Bank Dec-13 Banks 13% 8% 1.25 18% 4% Down
Swaraj Engines # Dec-13 Auto Components 21% 23% 10.14 33% 30% Up
MC: Market-cap (as of 31 December 2013); OP: Operating Profit; * Return on net worth is based on trailing four quarters of net profit; ** Valuation is based on
the recent quarter operating profit annualised; # These stocks have been covered in Stockgrader, Street Beat, Cover Stories or Kensource stockletter
Company Results
Declared
ML Sector Latest Qtr
Revenue
Growth
Average
3-Qtr Revenue
Growth
Valuation
(MC/OP)
**
Return on
Net Worth
(%) *
Tax
Rate
Price
Trend
Stocks Value Pick.indd 3 3/1/2014 5:25:38 PM
Issuer Maturity
Date
Next
Coupon
Last
Yield (%)
ISIN Rating
PFC 8.60% 07 Aug-14 07 Aug-14 10.32 INE134E08BN7 CRISIL AAA
TATACAP FINSER 0% 27 Jan-15 10.23 INE976I07BZ8 CRISIL AA
NHB BONDS 10.24% 11 Sep-16 12 Sep-14 10.20 INE557F08ES9 CARE AAA
NSE data as of last trade date of 25 February 2014
Rajasthan State Road
Transport 10.25%
20 Feb-24 10 Aug-14 10.33 INE700N08015 BWR A
(SO)
TATA MOTORS FIN 9.45% 29 Mar-18 29 Mar-14 10.30 INE155A08126 CARE AA
L&T INFRA FIN 10.35%
(unsecured)
29 Jan-24 29 Jan-15 10.00 INE691I08255 CARE AA
BSE data as of last trade date of 25 February 2014
Maturity Date Last Trade Yield(%)
15 Feb-27 9.34
21 Sep-27 9.33
20 May-23 9.31
G-Sec data as of last trade date of
26
th
February
T
he 10-year benchmark government security (G-Sec) yield, which sets the tone of
the xed-income market, was at 8.74% on 11
th
February and suddenly moved
to 8.92% on 26
th
February. The yields touched two-month high due to expectations
of a liquidity crunch arising from corporate tax payments in March. There are also
redemption pressures from some mutual fund schemes. The three-month inter-bank
borrowing rate jumped 27bps, to 9.67%. RBI has made it clear that containing
ination continues to be its priority.
S
tate Bank of India has reduced
xed deposits (FD) rates by 0.25%
for maturities of three to ve years
and 0.50% for FDs for over ve years.
Canara Bank and Kotak Mahindra
Bank have increased interest rates
for deposits of over Rs1 crore. UBI
has increased lending rates, but cut
interest on deposits.
Sudden Jump in 10-Year G-Sec Yield
Bank FD Rates
T
he rating of United Bank of Indias (UBIs) certicates of deposit (CD)
was lowered by ICRA and CRISIL. CDs are often purchased by mutual
fund (MF) companies and other institutions. Due to the downgrade, there
can be mark-to-market losses for some MF schemes, depending on the
duration of the UBI CD and the amount invested by the
schemes. However, due to their diversied investments,
the impact may be minimal. But it shows that mutual
fund investment even in CDs of public sector banks
(PSBs) can have its risks. Bank NPAs have been a matter
of concern for the past few quarters. Portfolio details of
mutual fund schemes do matter and should be analysed
before making your investment decision. The nature and quality of a
schemes investmentsCD, CP (commercial paper), bonds/NCD (non-
convertible debentures), along with their ratingsshould be of concern to
investors. CDs from PSBs are considered safer than other options, but the
UBI CD downgrade has highlighted the aw in this assumption.
Y
ou can expect to get yield of over 10% for AAA and AA rated bonds maturing in
the next couple of years. The bond yields have improved over the past couple of
weeks due to increase in 10-year G-Sec benchmark yields by 18bps (basis points).
I
nvestors will have ample options for
tax-free bond investments in March.
IREDA and Ennore Port issues were
launched on 17
th
and 18
th
February,
respectively. IRFC (AAA rated) and
HUDCO (AA+rated) bonds were
offered from 28
th
February. The coupon
for IRFC was 8.44% and 8.88% for
10 and 15 years, respectively. HUDCO
offered 8.54%, 8.98% and 8.96% for
10, 15 and 20 years, respectively. NHB
and REC issues were expected to open
on 3
rd
March.
NTPC was also expected to launch
tax-free bonds in mid-March. Investors
lapped up NHBs and NTPCs tax-
free bonds during the last issue and,
hence, a fresh issue from both will be
an option for those who missed it or
got partial allotment. Tax-free bonds
are an excellent option for those in
20%, or higher, tax bracket. Due to
uncertainty (about whether these be
offered in the next nancial year) and
the high rates offered currently, the
option is worth considering.
Options for Tax-free
Bonds
UBI CD Downgrade
Top-rated Corporate Bond Yields
FIXED INCOME
MONEYLIFE | 20 March 2014 | 40
Fixed Income.indd 1 2/28/2014 9:15:07 PM
Moneylife Foundation AD.indd 1 2/28/2014 6:18:17 PM
MONEYLIFE | 20 March 2014 | 42
P
remiums of mediclaim products
have gone up since the new
health insurance regulations came
into effect in October 2013. You
can expect 15% to 35% increase
in your health insurance outgo.
Features like lifelong renewal,
no-claims-based loading come at a
price to be paid by policyholders
across various age groups.
Government insurers have
increased premiums by 20%-25%.
New India Assurance is allowing
policyholders to stay with the old
product Mediclaim 2007, but they
have to pay premium as per the
new product Mediclaim 2012.
In short, there is no escape from
increased premiums. Oriental
Insurance has
changed the way
premium is calculated
for its Happy Family
Floater product which
the insurer terms as
closing a loophole that
was being exploited
by customers. The
premium for this
product, with the new
computation, can be
higher by almost 100%,
in some cases.
ICICI Lombard has
discontinued its old mediclaim
product as it was not compliant
with the new regulations.
Policyholders are forced to move to
the new product, called Complete,
which has a higher premium. The
increase in premium can go up
to 35%. Are the new regulations
being used as an excuse to jack up
the premiums and to make existing
mediclaim obsolete?
Policyholders, whose renewal
is due in 2014, should seek
information from the insurance
company to find out if their
premiums are being increasedng
and, if so, by what extent.
Mediclaim premiums are a major
expense for customers; insurance
companies should be proactive
and give upfront information
about premium increase so that
policyholders can plan for it. Will
some insurers give a nasty surprise
at renewal to avoid giving time to
the insured to plan for
portability?
Some insurers, like
Max Bupa, who already
had a mediclaim
product offering
lifelong renewal
and no-claims-
based loading have
not increased the
premium, although
it was on the
higher side, to
begin with. Bajaj
Allianz had to upgrade its existing
mediclaim product Health Guard
with features compliant with new
regulations, but has refrained from
hiking the premiums.
L
&T General has received
approval for a super top-
up health insurance plan of up
to Rs25 lakh. L&T my:health
Medisure Super Top Up can be
purchased even if you dont have
a mediclaim policy and are willing
to pay hospitalisation expenses up
to specific limit from your own
pocket. If you are already covered
by individual or group mediclaim,
you can still avail the super top-
up to cover yourself beyond the
maximum limit of the existing
mediclaim. United Indias Super
Top-Up was the only standalone
policy available in the market until
now. Max Bupa Heartbeat High
Deductible plan is also super top-
up policy, but it is available only
for those who have a mediclaim
product from the same insurer.
The premium for super top-
up is lower than that for regular
mediclaim. The difference between
super top-up and top-up is that,
in the case of a top-up policy, the
expenses for a single treatment
should be over the threshold,
whereas in a super top-up the total
expenses in a year must be above
the threshold level for the policy
to be useful. Thus, between a top-
up and super top-up, the latter
is more beneficial for customers.
There are several top-up policies in
New products, regulations, features and options,
interpreted from your perspective
Insurance Trends
Steep Rise in
Mediclaim
Premiums
He alt h I nsurance
New regulations an excuse?
L&T General
Medisure Super
Top Up
He alt h I nsurance
Product worth considering
for saving costs
| 42
,
portabil
Som
Max B
had a m
produc
lifelon
and n
based
not i
prem
it w
high
beg
Insurance.indd 2 2/28/2014 8:56:04 PM
168
cases
handled
123
cases
guided
correctly
Moneylife Insurance
Helpline Success
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The initiative
from your group is
commendable as it will be
helpful to spread awareness
about the dos and donts by
customers before finalising
an insurance product to
prevent from being cheated.
- Amit Mishra
I am extremely
happy about the manner
and speed with which my
issue was handled. This
speaks volumes about
Moneylife Foundation.
- N Kanitkar
y
Within 3 days of
writing to the Helpline, Reliance
credited the money. This was an
amazing turnaround! My sincere
heartfelt thanks to the entire
team at Moneylife Foundation
for acting so swiftly.
- Dinesh Shanbhag
We thank you
for the support you
gave to our cause
which also helped
LIC accept their
mistake.
- N K Bhatt
Aviva tried to
pressurise me to purchase a
policy. Thanks to Moneylife
Foundation, I have taken an
informed decision rather than
hurry and fall into a pit.
- Tushar
I want to thank
Moneylife Foundation for
preventing us ordinary
people from falling into
financial traps.
- Brijesh
45 members got back over
` 29 lakh
Have any insurance-related problem? Contact us at
hp://moneylife.in/promoon/insurancehelp/unregistered.html
Insurance Helpline Success.indd 2 2/28/2014 5:57:55 PM
the market; but they are not worth
falling for. There is mis-selling, as
customers are not aware of the
difference between super top-up
and top-up and usually fall for the
top-up trap. L&Ts Super Top-Up
will have a premium of Rs2,472
for a Rs25-lakh policy (Rs20
lakh cover, Rs5 lakh threshold
deductible) for a customer under
35 years of age. The premium will
be Rs2,719 for individuals in the
36-45 years age group and Rs4,079
for individuals in the 45-60 years
age group. The policy cover in the
above example will kick-in after
your yearly hospitalisation expenses
exceed Rs5 lakh.
T
ata AIA Life has launched
MahaLife Gold, a whole life
cover up to age 85 years that
provides insurance cover and
assured benefits of 5.5% of the
sum assured payable from the 10
th
policy year till maturity. The non-
guaranteed cash dividends will be
paid from 6th policy anniversary
till maturity. Even though there are
assured benefits, the returns from
product is uncertain due to non-
guaranteed payout component. The
product offers limited premium
paying term of 15 years and can
be purchased from age zero (birth).
Tata AIA had a product with the
same name MahaLife Gold before
the new life insurance regulations
came into effect on 1 January 2014.
The old plan offered 5% of the
sum assured from the 10th policy
year till maturity which was at 100
years instead of 85 years offered
by the new plan. MahaLife Gold
was a popular plan for Tata AIA
and competed with Life Insurance
Corporations (LIC) Jeevan Tarang
before the new regulations.
INSURANCE TRENDS
Fine Print
Tata AIA Mahalife
Gold
L i f e I nsurance
Whole life plan till 85
Unclaimed Amount
5,000
2,000
4,000
3,000
0
1,000
2009-10 2012-13
Rs Crore
Insurance.indd 4 2/28/2014 8:56:24 PM
In order to offer you diverse choices, insurers end up creating complexity.
They seem to have an insurance product, no matter what your need! Childrens
education? There is an insurance product for that.
Your Insurance against Insurance
Need post-retirement income? There is an insurance product for that too. Advertisements to
sell these products assure a secure future.
But most of these products deliver poor returns, do not provide adequate coverage of risk and
are designed to benefit the insurer.
Moneylife
Insurance coverage:
bold, unbiased & practical
What You need is insurance against insurance
products that you are lured into buying. You will get
this from our insurance coverage
Insurance ad.indd 1 2/27/2014 6:23:13 PM
S
uddenly, the otherwise sleepy new car market in
India is abuzz with discussions on the range of
small cars which are already out with automatic
transmission or promise to provide automatic
transmission. Primarily, as on date, that means the
Maruti Celerio, which sports a Magnetti Marelli AMT
(automatic manual transmission), and a wide choice of
cars from other stables that have promised the customer
that they are almost ready too.
AMT has automated the functions of a gear-shift
and clutch and ensures that you use the hand-brake
when you have to park. Gear selection is taken out of
your left hand and left foot and transferred to your
fingers, with some very minimal control still left for
those high-revving moments that you may need every
now and then.
All in all, it makes for a relaxed style of driving; but
there is still no clarity on the issue of maintenance as
well as how it will actually perform. To be fair, friends
in the industry tell me that this has been tried and tested
all over the country under real driving conditions. Have
they included the typical overloaded conditions which
require more clutch and gear play than city driving?
If your driving style is simple and non-aggressive,
then this is certainly the best option with non-manual
transmissions going on our roads in any segment. The
old-style automatic transmission causes heavy torque
loss and higher fuel consumption. The continuous
variable transmission is complicated and makes a mess
of the restricted engine area; and the double-clutch
system is better suited for bigger cars because it also
costs a lot.
Expect to see automobile garages attempting
to re-set the AMT soon, to try and achieve better
performance or more economy, as per the customer's
desire. The other benefit I expect from this is that it will
not be so easy any more for valets and others to damage
the car by revving it up excessivelyI hope. There is
always the option of paddle-shifters or moving the drive
position shifter around in such a way that the engine
can be made to over-rev and then be slammed into a low
gear.
W
hats the reality on the latest NCAP (new car
assessment programme) results for Indian cars
which have caused so much stress and confusion with
their convoluted results on entry-level models of many
cars sold in India? Well, without going into the specifics
of their methodology, the makes and models tested, and
the results, here is my view.
Indian road and driving conditions are certainly
different. At this juncture, the idea is to improve the
mobility of people at as low a cost as possible, with
reasonable safety and efficiency. Loading a car with
electronic gadgets on par with the rest of the world will,
at this juncture, not really fit into that set of parameters.
Though, personally, I do wish people would spend more
on safety equipment than on stereos.
More important, this test also brings out the simple
truth and reality that almost NONE of the cars tested,
brand for brand, would match the same car as sold in
European marketswhich is where the real problem
lies. We ASSUME that foreign brand cars sold to us in
India are the same as those that sell abroad.
Remember, thats why the Morris Oxford was
renamed the Hindustan Ambassador and the Fiat 1100
was renamed the Premier President. And similar names
for other vehiclesTata Mercedes-Benz, Ashok Leyland,
Standard Herald, to name just a few. Time we did the
same, again, instead of fooling ourselves.
F
or years considered the
ugly stepsister of beautiful
Barcelona, Madrid has nally
come into its own. It has
emerged as the beating heart of Spain,
a beguiling city that really knows how
to live. The seat of the government
and monarchy, Madrid has an old-world elegance thats
reected everywherefrom the gardens, monuments
and museums to medieval mansions and royal palaces.
Despite being tied to tradition, the city is brimming
with cutting-edge design, ne arts and sheer energy. Its
gregarious nightlife is also legendary; the innumerable
bars and nightclubs enhance the appeal of after-dark
Madrid. No wonder, tourists cant afford to give this
city a miss.
Getting around Madrid is convenient and
reasonably priced. The city sports one of the best
public transportation networks in the world and the
second-largest metro system in Europe. Buses and
subways form an integrated network.
A single ride costs 1.50 / 2, while a
10-ride ticket costs 12.20 / 18.30
(depending on the zone). To save cost,
buy a 10-ride Metro-bus ticket that is
valid on both metro and bus. You can
also buy an unlimited travel pass for
one, two, three, ve or seven days.
The best sightseeing option is Madrid Hop-On
Hop-Off-City-Tour bus. It operates on two separate
routes, but a single ticket is valid on both routes. The
tour costs 21 for one day and 25 for two days. If
youre planning to spend more than a day touring the
city, buy the money-saving Madrid card that provides
free entry to over 50 museums and a variety of
attractions.
If you dont want to travel by public transport, ag
down taxis that are plentiful and not too expensive.
Most taxi-drivers dont speak English, so make sure
to carry your destination address written in Spanish
SPENDING TRAVEL
Livinla Vida Loca
P
h
o
t
o
C
r
e
d
i
t
:
S
a
t
y
a
n
I
s
r
a
n
i
If theres one city on earth
that knows how to live
the crazy life, its Madrid.
Naveena Israni explores the
passion and vibes of this
effervescent city
MADRID
Travel.indd 2 2/27/2014 6:08:29 PM
SPENDING TRAVEL
or your hotels business card. It would help to know
a few Spanish words to indicate directions and street
numbers. Renting a car isnt recommended, since
parking is a nightmare. This makes sense only if youre
planning day-trips to nearby towns.
Though Madrid is considered the most expensive
city in Spain, its cheaper for travellers than major
world capitals like Paris, London or New York.
You can change cash or travellers cheques at any
bank or exchange bureau. Get your cheques in large
denominations to save on per-cheque commission
charges. Exchange bureaux
have longer
hours than
those of banks,
but worse rates
and steeper
commissions.
Most major
credit cards
are accepted
throughout Spain.
Tourists should
watch out for value-
added tax, known
as impuesto sobre el
valor aadido (IVA).
Hotels and restaurants charge
IVA at 7%; on retail goods, its
16%. Visitors are entitled to
a refund of the 16% IVA on
purchases above 90.16 from
any shop. Just ask the shop
for a cash-back refund form and
present it at the customs booth for reimbursement when
you depart from Spain.
Once youve gured out your mode of transport
and payment, begin exploring the citys raw, infectious
energy. Few cities have an artistic pedigree as rich as
Madrids. Masterpieces by Spanish talents such as
Goya, Velzquez, El Greco,Picasso, Dal and Mir,
apart from a plethora of Flemish/Dutch (Rubens, Van
Dyck, Rembrandt, Van Gogh, Bosch), Italian (Botticelli,
Raphael, Caravaggio), French (Monet, Renoir, Degas)
and German (Drer, Cranach, Grien) artists adorn the
citys world-class galleries.
First-time tourists must visit the golden triangle of
museumsMuseo Nacional del Prado, one of the nest
art museums in the world having the best collection of
classical art in Madrid; Museo Thyssen-Bornemisza,
housing one of the most extraordinary private
collections of European art in the world from the 13
th
century to the present day; and Museo Nacional Centro
de Arte Reina Sofa, which has a stunning collection
of Spanish modern art starting from the 20
th
century.
However, these museums are vast, so dont visit them
on the same day. Also, they offer free entry
during certain times of the day, so take
advantage of them on a lesser budget.
The Prado is a seemingly endless
parade of over 7,000 priceless works
that will seduce any art connoisseur.
Though its impossible to see the
entire collection, there are certain
masterpieces you shouldnt miss.
Velzquez is the undisputed
headliner of the Prados
collection. His
Las Meninas is to
the Prado what
Mona Lisa is to
The Louvre in
Paris. Also ranked
among Madrids
most emblematic
paintings are
Goyas The Second
of May, 1808 and
The Third of May,
1808, portraying the
anti-French revolt
and execution of
insurgents in Madrid. The museum timings are 10am-
8pm (Monday to Saturday) and 10am-7pm (Sundays
and public holidays). Theres free entry from 6pm-8pm
(Monday to Saturday) and 5pm-7 pm (Sundays and
public holidays). The entrance ticket costs 14 (general)
and 23 (with visitors guide book). The Prados website
offers timed-entry tickets that are cheaper than those
bought over the counter.
At the Thyssen-Bornemisza (entry ticket 8), begin
your visit on the second oor, home to medieval art,
and make your way down to modern works on the
ground level. Meanwhile, the Reina Sofas (entry ticket
8) biggest draw is Picassos masterpiece Guernicahis
53 | 20 March 2014 | MONEYLIFE
MUSEO NACIONAL DEL
ONE OF THE FINEST ART MUSEUMS IN THE
WORLD HAVING THE BEST COLLECTION OF
CLASSICAL ART IN MADRID
HOP-ON HOP-OFF CITY TOUR BUS
THE TOUR COSTS 21 FOR ONE DAY AND 25
FOR TWO DAYS
Travel.indd 3 2/27/2014 6:13:01 PM
protest against the German bombing of the Basque
town of Guernica in 1937. Another eye-catching
architectural innovation in Madrid is the Caixa Forum,
a private museum of contemporary art and culture
that seems to hover above the ground. You cant miss
the jardn colgante (hanging garden), a vertical wall of
greenery almost four-storey high.
Once youve had your ll of art and architecture,
unwind at the glorious gardens of Parque del Buen
Retiro. Interspersed with marble monuments,
landscaped lawns and abundant greenery, its the
perfect place for a stroll, boat ride or to nurse a cool
drink. The focal point is the articial lake, watched
over by the massive Monument to King Alfonso XII.
Retiro Park comes alive on weekends with street/theatre
performers, live musicians, clowns, magic/puppet/dog
shows, tarot card readers and hawkers.
Another place to chill out is Plaza Mayor, an elegant
and bustling square. Considered Madrids architectural
jewel, it transports you back to the
17
th
century. Its
surrounded on three
sides by ochre-hued
apartments. The only
break in symmetry
is the Real Casa de
la Panadera (Royal
Bakery), decorated with
colourful frescoes. Ringed
with souvenir shops,
cafs and restaurants,
the square is packed with people, day and night. Pull
up a chair (at the outdoor tables) or laze upon the
cobblestones to gaze at the Spanish street life buzzing
through the plaza. Then wander around Los Austrias
neighbourhood teeming with tapas bars and nightclubs.
A noisier gathering place is Puerta del Sol, a plaza with
neo-classical buildings which is considered the heart of
Madrid and one of the busiest places in the city. Indulge
in the various shopping and eating joints, but watch out
for pickpockets. Another tourist attraction is Plaza de
Cibeles that evokes the splendour of imperial Madrid.
It houses the Fountain of Cibeles, which portrays the
Roman goddess of fertility sitting upon a chariot pulled
by two lions. Whenever Real Madrid football club wins
a match, its fans come here to celebrate.
Another must-visit tourist spot is Palacio Real,
one of the most emblematic and beautiful buildings in
Madrid. This 18
th
-century royal palace is the ofcial
residence of the King of Spain, though the royal family
doesnt reside here. However, the palace is sometimes
used for ofcial ceremonies. Be prepared for a visual
onslaught; the opulent interiors, architecture and
artistic treasures will bombard your senses. Tour the
elegant Royal Chambers, resplendent Banquet Hall,
lavish Throne Room and extravagant Porcelain Room
and see their exquisite tapestries, frescoes, artwork,
carvings, china, silverware, etc. Also visit the Farmacia
Real (Royal Pharmacy) that contains a formidable
collection of medicine jars for mixing royal concoctions.
Continue on to the Armera Real (Royal Armoury)
which houses a hoard of medieval weapons and suits
of armour. The palace timings during April-September
are 9am-6pm (Monday to Saturday) and 9am-3pm
(Sundays and public holidays); it closes one hour earlier
from October-March. The entry ticket costs 10.
For football fanatics, a tour of Santiago Bernabeu
(entry ticket 19), the home
of Real Madrid, is not to be
missed. Circumnavigate the
towering stadium and eld,
sit in the players dug-out,
visit the dressing rooms,
Press Room and Real
Madrid Museum, take a
peek at the clubs trophies /
jerseys/shoes or buy Real
Madrid memorabilia from
the club shop. You can
even get morphed photos
clicked with your favourite
player and purchase them
as souvenirs, though they are costly (large photo
17, small photo 12).
If you visit Madrid during the bull-ghting season
(mid-May to October), head to Plaza de Toros Las
Ventas to gain an insight into this Spanish tradition
lled with blood, courage, nobility and, sadly, cruelty.
Las Ventas is one of the largest and most revered
bullghting rings in the world. Each bullght stars three
matadores and six bulls. Each matador leads a team
of toreros, picadores and banderilleros. They aim to
impress the crowd with daring moves which, ultimately,
result in the bull being killed. Buy tickets in advance to
bag good seats. Ticket prices range from 5 to 150.
Madrid also offers excellent shopping and
entertainment opportunities. The smartest shopping
district for tourists is Sol-Salamanca, home to El Corte
Ingls (Spains largest department store); high-street
names like Zara, H&M, Mango; and top designers
SPENDING TRAVEL
MONEYLIFE | 20 March 2014 | 54
BULL-FIGHTING SEASON
FILLED WITH BLOOD, COURAGE,
NOBILITY AND, SADLY, CRUELTY
Travel.indd 4 2/27/2014 6:10:19 PM
55 | 20 March 2014 | MONEYLIFE
When To Go
Spring and autumn are the best seasons to visit Madrid,
especially April, May, June, September and October.
Cultural and street festivals are held for most of May. Its
uncomfortably warm during July-August and bitterly cold
in January-February. If youre here for the art galleries
and museums, avoid Mondayswhen many are closed;
the Reina Sofa is an exception, closing on Tuesdays.
Getting There
Air: Madrid Barajas International Airport is located 13km
from the city centre. Its one of the largest airports in
Europe and serviced by many airlines from Europe and
beyond. The biggest airlines flying to Madrid are:
Emirates, British Airways and Lufthansa. There
are no direct flights between India and Madrid.
Train: Renfe trains connect Madrid with destinations
throughout Spain. Also, the Eurail connects Madrid
with other European cities like Lisbon, Milan, Paris, etc.
Madrid has two train stationsChamartn and Atocha.
Most northbound and international trains arrive and
depart from Chamartn, while trains to Barcelona,
Valencia and southern Spain depart from Atocha.
Where To Stay
Madrid has a large number of hotels. Staying in a luxury
hotel can cost more than 200 a day; mid-range and
semi-luxurious boutique hotels charge 100- 200, while
budget hotels rarely cost over 60. Advance reservation
is recommended. Retiro and Los Austrias are upmarket
areas housing luxury hotels, while Sol and Gran Va
are best for mid-range accommodation. Malasaa
and Chueca offer good budget pensiones (guest
houses), while Huertas and Santa Anaareas have
cheap pensiones and boutique hotels.
ESSENTIAL FACTS
pe and
e:
are best
and
ho
c
like Chanel, Versace, Louis Vuitton, Armani, Adolfo
Domnguez, Cartier, Prada, etc. The most avant-
garde part of Madrid is Fuencarral Street, lined with
restaurants, shops and night clubs. The main market
here is Mercado de Fuencarral. Besides selling clothes,
shoes, accessories and decorative items, it hosts cultural
activities like disc jockey sessions, cinema and theatre
performances. Gran Via is another busy avenue
thats good for shopping, Broadway-type musicals
and amenco
performances. If
youre looking for
bargain deals, shop
at Alcal Street. Or
head to El Rastro,
Madrids largest
Sunday ea market
selling clothes,
leather goods,
jewellery and
handicrafts. But
watch your wallet!
Once
youre done
with sightseeing and shopping,
its time to test Madrids reputation for culinary
excellence. The city has embraced the innovation of
Spains gastronomic revolution, while staying true to
traditional Spanish cooking. Its residents love going out
to eat and drink. Most bars and nightclubs stay open
till 3am or 4am. The practice of stopping for tapas
(small snack) and cana (draft beer) before dinner is an
institution. The secret to enjoying a variety of tapas is
to seek out the specialty of each bar, wash it down with
a drink and move on to the next bar.
Madrid is also teeming with delis, cafs and gastro-
bars with great food and a lively atmosphere. They
range from simple and reasonable to elegant and
pricey. Two people can dine well for 50 or 150or
a lot less if they opt for tapas. A 10% tip for a meal is
considered generous, 5% is more the norm. Finally, no
trip to Madrid is complete without
sampling these must-have food
itemsTortilla Espaola (Spanish
omelette made of eggs, potatoes
and onions), Paella (Spains
national dish made of rice, seafood,
meat and vegetables) and Churros
(Spanish doughnuts).
After spending a few days here,
youll realise that no city captures the
Spanish soul as well as Madrid. Its
architectural and artistic history
provides a glorious backdrop to city life, while the
exotic nature of bull-ghts and amenco lures tourists,
time and again. So what are you waiting for? Pack
your bags and head to Madrid to soak in some Spanish
passion!
PALACIO REAL
ONE OF THE MOST EMBLEMATIC AND BEAUTIFUL
BUILDINGS IN MADRID
Travel.indd 5 2/27/2014 6:10:41 PM
ML FOUNDATION EVENTS
I
ndias legal system and an activist judiciary is probably
the key to its vibrant democracy. However, laws are
always complex and technical. New laws have come in
following two decades of liberalisation. Besides, our legal
system is slow, expensive and complicated. People are
always looking for legal helprelating to financial and
consumer products and servicesas also guidance on how
to use Right to Information (RTI) or file public interest
litigation (PIL), etc.
To help them, Moneylife Foundation launched its
Legal Resource Centre (LRC) on 21
st
February. The LRC
was inaugurated by former Miss World Yukta Mookhey
in the presence of a packed audience where distinguished
lawyers, accountants and activists were present.
In her brief but pointed remarks,
Ms Mookhey said: We often feel
wronged or cheated and believe that
a legal course of action would get us
redress. But you often end up meeting a lawyer or a
doctor or somebody whos going to wrong you further.
We should rather ask ourselves: Do I really want to get
into litigation? Do I really want to fight against something
or do I really want to put my energy, all my emotional
charge into something else that I believe in, said Ms
Mookhey, who has been involved in a tough divorce
battle. Those who want to fight legal battles should
also know that letting go is also a great act. So, I would
really want to suggest that emotional counselling should
be among the various things being offered at Moneylife
Foundations LRC! There are some great lawyers doing
fantastic work and there are really some genuine human
beings who are trying to improve the world. I really hope
and do pray that Legal Resource Centre and Moneylife
Foundation will bring about that change.
The LRC will help the ordinary individual to
navigate the redress systems put in place by a plethora
of independent regulators (SEBI, IRDA, banking
ombudsman, insurance ombudsman, electricity regulators,
etc) and self-regulatory organisations (stock exchanges),
which often have their own quasi-judicial complaints
handling and arbitration systems. It will also help
consumers to draft effective complaints and guide them on
how to argue their case in consumer courts.
The LRC will be specifically useful in dealing with
the Companies Act 2013 which has, for the first time,
created a provision for filing class action suits. Since this
is a new area, people need help to come together to build
an effective case. Even NGOs need help on these matters.
For instance, a large global NGO sought Moneylifes help
in filing complaints about false disclosures by a listed
company regarding its coal reserves.
The LRC will help people with RTI, public interest
litigation (PIL), the draconian Information Technology
Act, etc. Please see the ad on the next page to know the
areas LRC will cover. Please do use the LRC, spread the
word and write to us about how we can improve.
Legal Resource
Centre Launched
Moneylife Foundation launches its third free
helpline, after Insurance and Railways, covering
10 areas of interest to individuals
We should rather ask ourselves:
Do I really want to get into
litigation? Do I really want to
fight against something or do
I really want to put my energy,
all my emotional charge into
something else that I believe in
MONEYLIFE | 20 March 2014 | 56
SHAILESH HARIBHAKTI (L), WELL-KNOWN FINANCIAL EXPERT MAKES
A POINT ABOUT THE LRC AS DOES ACE LAWYER SACHIN GUPTA
was inaugurated by
in the presence of a p
lawyers, acco
In her b
Ms
wro
a le
We s We
Do I D
litiga
fight
I rea
all m
some
Event.indd 2 2/28/2014 9:29:06 PM
LRC.indd 3 2/28/2014 9:23:39 PM
Earning
Curve
Learn the
basics of
saving and
investing
T
he Financial Conduct
Authority (FCA), a
regulatory body in the United
Kingdom, in its first occasional
paper, Applying Behavioural
Economics at the Financial Conduct
Authority, has described the ways
in which behavioural economics will
lead to a more consumer-focused
regulatory approach. In its task
of regulating financial markets,
FCA focuses on the behaviour
of consumers to understand how
decisions are made and how the
external environment can influence
behavioural changes.
Behavioural economics uses
insights from psychology to explain
why people behave the way they
dooften quite irrationally. The
regulator recognises the fact that
individuals operate at two levels of
cognition, namely, intuition, which
is fast and effortless, and reasoning,
which is slow and deliberative.
Most individuals rely on the former.
People do not always make choices
in a rational and calculated way.
In fact, humans are intuitive and
reactive rather than deliberative and
reflective.
The paper mentions that people
often make errors when choosing
and using financial products and
can suffer considerable losses, as a
result. Using behavioural economics,
they can understand how these
errors occur, why they persist and
what they can do to deal with them.
The first part of the paper focuses
on the lessons from behavioural
economics and the reason why
consumer choice in financial
products is prone to errors.
People are mostly blind to their
biases and mistakenly trust their
intuition. Even people familiar
with different types of biases find
it difficult to spot how their biases
affect a particular decision. The
paper explains why biases affect
the choice of retail consumers in
financial markets. Some of their
findings are summarised below.
1. Financial Products Are Difficult
To Grasp: Financial products are
complex and can be difficult to
comprehend. Most people have
little interest in finance and,
therefore, find making financial
decisions hard, unpleasant and
time-consuming. This makes
it difficult for them to evaluate
financial products. And, though
some financial products may come
with elaborate disclosures, these
make them even more difficult to
comprehend, rather than helping
the consumer to make a choice.
Some decisions may depend on
macroeconomic circumstances that
consumers may have little chance of
knowing about or grasping.
2. Many Financial Decisions Require
Assessing Risk and Uncertainty:
People are generally bad at this.
Individuals rely on intuition and
are prone to making errors. Saving
and borrowing decisions, for
instance, often give rise to self-
control problems and may result in
procrastination, e.g., consumers may
over-borrow on a credit card and
then not repay it on time.
3. Many Financial Decisions Are
Emotional: Emotions, such as stress,
fear of losses and regret, can drive
decisions rather than the costs and
benefits of the choices, e.g., fear
might drive the purchase of an
expensive insurance for a phone that
may not really be required.
Using Behavioural Analysis To
Improve Regulations
MONEYLIFE | 20 March 2014 | 58
UKs Financial Conduct Authority is using insights from
behavioural economics for consumer-focused regulation
EARNING CURVE
59 | 20 March 2014 | MONEYLIFE
80% of consumers bought the add-on when they
had already been automatically opted-in by
default, compared to 40% when they had to actively
choose to purchase it themselves
Earning Curve.indd 3 2/28/2014 8:58:32 PM
BOOKS
MONEYLIFE | 20 March 2014 | 60
J
ohn Mihaljevic is the managing editor of The
Manual of Ideas, a monthly journal for value-
oriented investors. The popular investing newsletter
is aimed at generating investment ideas and publishes
interviews with numerous fund managers whose styles
cover a range across areas of investing.
Mihaljevic, in his book
titled The Manual of
Ideas, aggregates the key
takeaways from numerous
interviews with fund
managers and has created
a guide to value investing.
The book covers a range of
value investing styles and
opportunities: deep value,
sum-of-the-parts value,
jockey stocks, following
super investors, small- and
micro-cap stocks, special
situations, equity stubs,
and international equities.
If you are an avid reader
on value investing and have
already read other books
on the subject, theres only
a marginal value addition
to your knowledge.
However, if you are new
to stock investing, this would be a great book to gain
insights into different proven investment approaches.
Each investing category discussed has several dedicated
works. Therefore, those who find a particular approach
interesting, can do their research further.
Unfortunately, this book does not evaluate which
method works best or to identify which strategy one
should use, under what circumstances, and what would
be the outcome. It offers basic knowledge, but you will
have to dig deeper for a better understanding of which
style to actually use and when. This book is more of
a general overview of several approaches to investing
rather than a detailed research on any one of them.
The book offers methods for deciding whether
a company passed the right screen for the wrong
reason, whether the financial statements are fudged, and
discusses several other factors that may miss an investors
eye. In the chapter on deep value, the author describes
Benjamin Grahams approach to cigar butt investing.
Like cigar butts, which may have a few puffs left in
them, there may be stocks that have been discarded but
still have some value left. This is what Graham called
net net stocksstocks which were trading at a discount
to their net current assets.
In the chapter on good and cheap stocks, Mihaljevic
describes the concepts used by Joel Greenblatt to identify
a companys quality. Under this approach, the company
should not only be cheap but should be backed by a
high-quality business. (This is the approach adopted
by Moneylife while picking stocks.) In another chapter,
the author also talks about jockey stocks; in other
words, investing in companies with great management
by reviewing their capital expansion plans and trends as
well as their management compensation and incentives.
The book discusses how to follow investors who have
done well over time and achieve success by investing in
the same companies as they do.
While large companies are well covered by analysts
and institutional investors, Mihaljevic has dedicated an
entire chapter on finding hidden gems among smaller-
sized companies. However, most experienced investors
would be aware of the risks in these stocks; finding
a good bargain requires deeper digging. The book
also covers investing in stocks by looking for value
during special situations such as spin-offs, mergers or
acquisition. On this topic, among the most interesting
books is the one by Joel Greenblatt titled You Too Can
Be a Stock Market Genius.
Finally, choosing an investment style is a matter of
ones own special needs and interests. This book will act
as a good introduction. Jason Monteiro
T he Manual of I de as
A Guide to Value
Investing
A range of value investing styles and
opportunities
While all investors strive toward
essentially the same goalto make
money in the markettheir paths
may differ considerably. The historic
success of an approach means little
if an investor cannot understand the
underlying drivers of success
THE MANUAL OF IDEAS
JOHN MIHALJEVIC
WILEY
Pages 320; $40
Book Review.indd 2 2/28/2014 8:43:41 PM
BOOKS
T
his book is a compilation of Subroto Bagchis
long-running column about sixty men and
women I came in contact (who) left behind a sense
of wisdom. Bagchi shares these with us through this
tome. He classifies his subjects under various categories;
the category is mentioned in italics above the name.
Some of the choices, and their categorisation, would
seem strange. DeterminationRamesh Ramanathan
ex-Citibanker and co-founder of Bengaluru-based NGO
Janaagrha that works
to change the quality of
life in urban India, and
Janalakshmi, an urban
microfinance entity.
He also includes
Nandan Nilekani in this
category, because he gave
1.2b Indians an identity.
Under Vision is Harish
Hande, the winner of the
Social Entrepreneurship
Award of 2007 who
believes that subsidies are
for the rich, sustainability
is for the poor, and
Jimmy Wales, founder of
Wikipedia whose passion
for information arose out
of an operation that saved
his daughters life.
Under Courage is
GR Gopinath of Air
Deccan who went bankrupt twice, and NS Narendra,
owner of a fire-fighting company. There are others who
are low-profile but well-known in their own domain like
VG Siddhartha, son-in-law of former Karnataka chief
minister SM Krishna, promoter of successful ventures
such as Caf Coffee Day.
Bagchi features Kiran-Mazumdar Shaw under
Innovation; Dr Devi Shetty (Narayana Hrudayala),
Dr Sharan Patil (Sparsh Hospital) and Dr Gulapalli
N Rao (LV Prasad Eye Hospital) are placed under
Corporate Leadership. He writes about Dalai Lama and
Jaggi Vasudev, the BMW motorcycle-riding and golf
playing guru, under Altruism.
A few stories are about sheer courage and fortitude.
Like Anu Agas who anchored the family business
(Thermax) after the sudden passing way of her husband
Rohinton. A year later, her mother-in-law, a family pet
and son Kurush (who died in a fatal road accident) all
passed away within a fortnight of each other, giving
her a lesson in life: Pain is inevitable, suffering is
optional.
The story of Shashikant Shetty, the indomitable
owner of a dive bar at a Mumbai suburb, is gripping.
He survived a brutal attack in 2004 at the hands of two
off-duty policemen who drank at his bar, necessitating
180 stitches and blood transfusions. While knocking
on various doors for justice with bandages still on, he
realised how the off-duty rampage by a criminalised
force in uniform held the city to ransom.
In the introduction to the chapter on Vision, Bagchi
quotes from an video-recorded talk of Peter Drucker, the
father of modern management, with Peter Senge, where
he pointed out that the for-profit sector has much to
learn from the not-for-profit sector than the other way
round. It is easier for a for-profit business to sustain
itself because greed is a strong motivator.
Altruism is good but not always as potent as
greed, to build a shared vision of the future of society
in transitiona society that equates success with
consumption and celebrates moving along at all costs.
To create and sustain great businesses also requires the
powers of vision, altruism and volunteerism; the ability
to use technology as an ally, and the capacity to see
problems as opportunities. Many of the cases Bagchi
describes illustrate this.
These stories are interesting but, since Bagchi mostly
says nice things about everybody, ignoring the warts,
his book runs the risk of being seen as a collection
of puff pieces. After all, the unique identity project
of Nandan Nilekani runs the risk of going down in
history as the costliest and most irresponsible of public
projects, especially now that Nilekani has decided to
quit as head of the project and contest as a Congress
candidate. Did his determination to press ahead with
the project ignoring criticisms and challenges, only
amount to pouring billions of dollars down the drain.
Captain Gopinath is a model of courage but only
with other peoples moneymainly of public sector
banks, capitalised periodically with taxpayers money.
The microfinance company of Ramesh Ramanathan is
successful because of the governments failure to create
a fair and competitive lending system. Zen Garden is
a good read. Bagchi describes a wide cross-section of
achievers with great interest and passion. But it is rose-
tinted. Nagesh Kini
Z e n Garde n
Rose-tinted Profiles
Some good profiles, many puff pieces
J
J
JJ
ZEN GARDEN
SUBROTO BAGCHI
Portfolio Penguin
Pages 328; Rs499
61 | 20 March 2014 | MONEYLIFE
Book Review.indd 3 2/28/2014 8:44:04 PM
LIST PRICE: `400
MONEYLIFE PRICE: `350
LIST PRICE: `125
MONEYLIFE PRICE: `100
The most thrilling business book ever written in India.
A fast, colourful narrative knitting together the life
and times of all stock market players involved in two
of Indias biggest stock market scams.
These commonsense guides tell you in an inimitable
easy-to-understand, peppered with lots of real-life
examples, what you must know to make successful
investments in stocks and funds.
Two priceless books of autobiographical
narrative that candidly reveal the
unique thought processes, untiring
efforts and colourful anecdotes of top
achievers such as Ratan Tata, Amitabh
Bachchan, Mukesh Ambani, Aditya
Puri, Rajiv Bajaj, RA Mashelkar, Keki
Dadiseth, Geet Sethi and others.
Contact details: Mail in your remittances to Moneywise Media Pvt Ltd, 315, 3
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63 | 20 March 2014 | MONEYLIFE
INDIAN MARKET TRENDS
The Sensex and the Nifty advanced 3% each during the
fortnight ended 26
th
February. ML Mega-cap Index and ML
Mid-cap Index advanced 3% each. ML Large-cap Index, ML
Micro-cap Index and ML Small-cap Index rose 2% each.
MONEY FACTS STOCKS
Mega-c ap Gai ner s/Loser s 14 Feb 26 Feb Change
ABB India 578.45 707.90 22%
NMDC 145.45 126.90 -13%
Lar ge-c ap Gai ner s/Loser s 14 Feb 26 -Feb Change
Amtek Auto 81.10 99.45 23%
Unitech 12.66 11.75 -7%
Mi d-c ap Gai ner s/Loser s 14 Feb 26 Feb Change
Uttam Value Steels 5.62 7.40 32%
Wheels India 667.75 581.15 -13%
Smal l -c ap Gai ner s/Loser s 14 Feb 26 Feb Change
Adi Finechem 79.80 115.35 45%
Warren Tea 273.60 191.80 -30%
Mi c r o-c ap Gai ner s/Loser s 14 Feb 26 Feb Change
Birla Cotsyn (India) 0.10 0.15 50%
Prime Securities 4.05 2.95 -27%
(All Prices in Rs)
I ndex 14 Feb 26 Feb +/-
ML Mega-cap Index 113.49 117.46 3%
ML Mid-cap Index 121.58 125.67 3%
Nifty 6,048.35 6,238.80 3%
Sensex 20,366.82 20,986.99 3%
ML Large-cap Index 124.12 126.95 2%
ML Micro-cap Index 108.89 111.32 2%
ML Small-cap Index 117.22 119.27 2%
I ndex 14 Feb 27 Feb +/-
Nikkei 14,313 14,923 4%
Hang Seng 22,298 22,828 2%
FTSE 6,664 6,810 2%
Korean Composite 1,940 1,978 2%
Nasdaq Composite 4,244 4,319 2%
Taiwan Weighted 8,514 8,640 1%
S & P 500 1,839 1,854 1%
Bovespa 48,201 47,607 -1%
Shanghai Composite 2,116 2,047 -3%
FUND FLOWS
ML Micro-cap ML Small-cap Nifty
Sensex ML Mid-cap ML Mega-cap
ML Large-cap
Share Prices, August 2013=100
Feb-14 Nov-13 Aug-13
130
100
110
120
Indians: Domestic institutional investors were net
sellers of stocks (Rs2,510.52 crore). They sold shares
worth Rs7,773.51 crore.
17 Feb-14 26 Feb-14
17 Feb-14 26 Feb-14
FII Net Investments
(Rs Crore)
615
530
275
190
445
360
-140
-615
-520
-235
-330
-425
DII Net Investments
(Rs Crore)
Money Fact.indd 2 3/1/2014 5:20:23 PM
FOOD INFLATION
Combined food inflation
stood at 9.90% for January
2014, down from 11.97% for
December 2013. For rural and
urban areas, food inflation
stood at 10.67% and 8.20%,
respectively, in January 2014.
Inflation in vegetable prices
came down to 21.91% in
January compared to 38.76%
in December. Fruit prices rose
15.66% year-on-year in January,
while pulses were dearer by
2.59% y-o-y. Inflation for
cereals stood at 11.42% and
inflation for milk products was
9.82%. The price rise of non-
vegetarian items, such as eggs,
meat and fish, was 11.69% in
January compared to 12.64% in
December 2013.
ML Sec t or al Tr ends
Trading 12% Steel -7%
Packaging 10% Telecom Services -6%
Cement 9% Non-Ferrous metals -4%
Con_EPC_Infra 8% Airlines -3%
Sugar 8% Energy -3%
MONEYLIFE | 20 March 2014 | 64
BULK DEALS
Dat e Company Buyer Sel l er Rs Cr
21 Feb-14 Shoppers Stop Miraj Marketing Company LLP Metropolitan Trading Co 16.92
19 Feb-14 Dhanuka Agri Zoom Leasing & Finance Co Ram Gopal Agarwal 14.03
19 Feb-14 Star Ferro Prem Kumar Bhajanka Vishnu Khemani 11.63
19 Feb-14 Century Ply Vishnu Khemani Prem Kumar Bhajanka 11.60
26 Feb-14 Exdon Trading Rajyavardhan Sonthalia Sinjan Overseas Pvt 0.72
21 Feb-14 ICVL Chem Veena Gupta Pyare Lal Gupta 0.26
18 Feb-14 Gangotri Iron Hallmark Commerce Pvt Sekhwell Trading & Finance Pvt 0.06
WhatsH T
Whats N T
Copper
C
opper prices have been under
pressure on concerns about Chinas
economy and as Chinas property prices
cooled down. This has dampened
demand for copper
not only in the
construction sector
but in the home
appliances sector as
well. This affected
prices internationally
as China is the second in global copper
demand, behind US. On 27
th
February,
March futures prices on the MCX fell by
2.21%, to Rs442.55/kg from Rs453/kg
on 19
th
February.
Gold
G
old prices continue to trade
with a positive bias, as safe
haven buying, due to Ukraine-Russia
tensions, coupled with a weaker
dollar, helped
demand. However,
expectations of the
US Fed continuing to
reduce its stimulus
programme could
dent golds appeal.
Gold, in dollar terms, has gained
nearly 7% in February 2014, to $1,330/
ounce. Back home, movement of the
rupee would play a major role.