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NIFTY 5352/5449 SENSEX 17833/ 18130 1
DOW 10198/ 0424 FTSE 5132/5312 NIKKEI 9585/9430 CRUDE 7542 /7722
. .
The world of personal finance Volume- 20 31 August 2010 Rs 30
MONEY Mantra
Identify These Indian
I NVESTORS
GOLD 18578/ 18496 SILVER 29176/29294 US DOLLAR 46.67 /46.94 POUND 70.51 /72.39 .
EURO 58.91 /601.3
Rates indicate fluctuation between 10th July to 24th July 2010
EP 3-35- alok.qxd 8/10/2010 8:38 PM Page 3
EDITOR’S NOTE
Let Subbarao
learn from
Year : 01 Issue : 20
DIRECTOR & PUBLISHER
JYOTI NARAIN
EDITOR
Dr Singh
AWANISH K MISHRA Which is more high profile and confidential- cabinet meeting or the
RBI board meeting? Obviously, it is the cabinet meeting which decides
the fate of the nation as a whole. No doubt, the deliberations of cabinet
EDITORIAL TEAM
Kanchan Dass, Senior Sub editor
meetings are marked top secret, the participants refrain from divulging
Shilpy Arora, Senior Sub editor cum correspondent any detail and each member of the cabinet abides by and supports the
Alok Dwivedi, Sub Editor cum correspondent decision so taken. Of course, the minutes are prepared, but not made
Harish Kumar, Sub Editor cum correspondent
Renu Baliyan, Sub Editor cum correspondent
public. Now take the case of RBI. It has the convention of maintaining
secrecy of board meetings. Deliberations are not made public and
board members support the decision taken in the meet. Even if some
GRAPHIC DESIGNER members don't subscribe to the decision, they don't voice their dissent
Harikrishan Pal
Arun Sharma
publicly.
But recently, there have been a few exceptions. Union Home
PHOTO Minister P Chidambaram voiced his anguish over not being allowed to
Ravi Girota use air strikes to combat Naxal menace. He spoke of 'limited mandate'
to curb naxalism. Pranab Miukherjee, the senior most cabinet minister,
CIRCULATION
Sudhir Kumar Rai observed that whatever was discussed in the cabinet meets should not
be deliberated upon publicly. But Prime Minister Manmohan Singh
neither took any harsh action against the PC nor let any of his col-
ADVERTISEMENT leagues humiliate him. It speaks of his political maturity, statesmanship
Kamal Sharma
Subhash Chaudhary and a love for democratic approach to reach at a consensus.
Incidentally, Dr Singh happens to be the former RBI Governor as well.
HEAD OFFICE Now take another incident. RBI increased repo and reverse repo
C- 125, Sector- 19 rate in its monetary policy declared on July 27. One of its deputy gov-
Noida
Uttar Pradesh ernors was of the opinion that the approach of RBI should have been
Email: editor.moneymantra@gmail.com more hawkish. He commented that "(interest) rates should have come
Phone: 0120- 4710700 up much higher" and that "RBI is not the real monetary policy maker"
Fax: 0120-4710728
www. moneymantra.co.in (hinting that the Finance Ministry dictated the extent of hike). Within
hours of airing his opinion, he was stripped of all the important port-
folios.
Equate this with the aforesaid incident of union cabinet. Given the
fact that K C Chakrabarty didn't lobby for the post of deputy governor
rather he was persuaded for the post despite his outspoken nature,
makes the action of RBI Governor D Subbarao all the more deplorable.
Published by Jyoti Narain for
In the US, the members of the Federal Reserve make their dissent pub-
Pearls News Network Pvt. Ltd.from C-125,
Sector- 19, Noida, lic and decision is taken by voting. Why can't RBI adopt a more dem-
Uttar Pradesh and Printed at MP Printers, ocratic approach on the pattern of US Fed. Dr Chakrabarty is the only
B- 220, Phase- II, Noida- 201305 deputy governor with the RBI who has deep insight into commercial
Disclaimer: Money Mantra is a personal finance banking and who has been working tirelessly to bring some method to
magazine and the financial solutions provided by adminstrative madness prevailing in the regulatory body. He is a man
different experts in this magazine are only sug-
gestive in nature. Readers should take advice
of unquestionable integrity and impeccable
from their financial advisors before taking a final sincerity. By trimming his portfolio,
call. In no case, Money Mantra team or manage- Subbarao has brought disgrace to his stature
ment can be held responsible for financial loss
caused to readers.
once again.
With best wishes,
EP 3-35- alok.qxd 8/10/2010 8:38 PM Page 4
1
CONTENTS News Track
August 31, 2010 08 SEBI proposes new norms to
Investment
help MF investors
Volume 20 08 More M-banking in future Stock & Commodity Banking
09 Bank with India Post 20 Demand for yellow 46 Does your bank charge
09 UTI MF on cell
ON THE COVER metal softens for it?
In speed clearing, banks are not per-
As concerns over financial market sta-
mitted to charge anything for the
IDENTIFY THESE
bility have receded, the price of gold
has shown signs of softening. cheques of value up to one lakh
rupees.
24 The upward move likely
48 Key is caution
to sustain Special Report
INDIAN INVESTORS
ECS has an edge over traditional
Investors are suggested to remain cheque-centric processing systems
invested as the risk-reward ratio is still which are comparatively expensive. 14 The friday effect
looking favourable. There is a myth among investors and
India has been a nation of savers. Profligacy has traders that major indices of stock mar-
been looked down upon and the saving habit has Mutual fund kets often get supported on the last
52 Think before quitting trading day of the week.
been lauded as a virtue through most of our
An exit load can have significant
fables and stories. In recent years, as the
Indian economy has grown rapidly and new
36 10 Cashless facility available
for trauma
impact on the final returns from a debt
fund; hence one should be aware of
Insurance
employment opportunities have risen, saving pat- 10 PNB to offer life cover this.
54 No reason to say no
tern has undergone a sea change. New avenues of 11 Time limit for solving Life insurance comes with a few obvi-
investment have propped up and changes have insurance grievances ous advantages. But people have a num-
ber of reasons for not buying it.
been observed in spending style. This report 11 Database to check
threadbares the changing profile of Indian investor. insurance fraud Scrips on Radar 58 No gain in switchover
12 Policy rates hiked by RBI A disease developed after buying poli-
12 Maruti Suzuki India planning 26 Greenply Industries cy may not be covered if one shifts to
for general insurance The company has a wide variety of another insurance company.
13 Now public float 10% for product brands and strong presence in
PSUs, not 25% over 300 cities. It exports to more than
13 If fee goes up, give 50 countries world over. INTERVIEW
exit option: SEBI 27 Dabur India
The company is trading at a relatively 42 Mr. Rajesh Shukla is a man of sta-
Financial Planning higher premium to its peers, however tisics. His survey reports have been
forcing financial strategists to revisit
its justified since DIL has one of the
most diversified portfolio among their strategies. He talks about his
those. recent book ‘How India Earns, Spends
and Saves: Unmasking the Real India’
28 KEC International
The company is adequately hedged
against slowdown in any particular Consumer Law
region as it has a strong international
presence across geographies.
60 Comfort or trauma
29 Omnitech Infosolutions Tele shopping may make you uncom-
fortable if the products are not up to the
With the current bouquet of services, mark or damaged.
Omnitech is posting one of the best
margins amongst mid and small IT
66 Dr. Menon’s Clinic
services companies.
Taxation
30 Torrent Pharma 62 Bid for big
Vidu, a 26 years old professional, is earn-
ing handsome amount and saves more TPL has already initiated development If income tax has been paid once by
than half of the same. He visits Dr. work at Dahej. Company’s aggressive LLP; it is not to be payable by differ-
Menon for a proper plan for future invest- capex guidance offers comfort on ent partners for share of profit from
ments. growth visibility. the same.
EP 3-35- alok.qxd 8/10/2010 8:38 PM Page 6
Cartoon Mantra
READER Mail
“ India has discovered its social securi-
ty system in New Pension Scheme
(NPS). NPS lite has made it all the more
affordable. The Swablamban scheme of
Union government is commendable.
Impressed by your write up, I went to buy NPS
for myself. I live in Agra. I visited so many
banks and even the post offices, but nobody
was aware of it. Where is it available? Why is
this financial product not being marketised
well? Is the government under pressure from
private companies selling similar products or
is it working with the motive of selling least
number of policies in FY 10-11 to save
swablamban subsidy?
“
- Manoj, Agra
Let NPS prove its the regulator and what role is being
mettle played by the government is not SEBI summons Anil
known to anybody. There are news
New Pension Scheme is yet to reports which suggest that insur- Ambani
prove its worthiness. It is only one ance companies are planning to Irrespective of big and small, every-
year old and the conclusion that launch premium cashless facili- body is on the radar of SEBI when
it's one of the best retirement ben- ties at a higher rate to allow cus- it comes to transactions in stock
efit schemes may prove disas- tomers to take treatment at expen- markets. SEBI has asked Anil
trous. There are several pension sive hospitals. If this is true, it is Ambani to appear before it for a per-
schemes in the market with like slapping the aggrieved cus- sonal hearing on September 3.
proven credential. ULIP products tomers.
Home loan call Besides Ambani, other four top offi-
are also preferable. At least you Mutthu, Cochin miffs Pranab cials - RInfra Vice Chairman Satish
have options to choose from and Seth and directors J.P. Chalsani, S.C.
there are agents to assist you. It’s a privilege Mukherjee Gupta and Lalit Jalan have also been sum-
Buying an NPS policy is so dif- You have been adding some- moned. Though neither the company nor SEBI
ficult. How difficult then it would thing new to each and every issue has revealed the nature of the case, there are
be to monitor its performance and of Money Mantra. There is star- speculations that it could be related to the alleged
getting its benefit. Suppose you Hollow regulator tling difference between the first share transactions involving two foreign banks
want to withdraw money from Refer to Cashless Confusion issue and the issue dated 15 through the FII route. Last year, SEBI had banned two
Tier two account, how to go for (MM dated 15 August). August. Let me congratulate you FIIs from issuing participatory notes.
the same. Internet connectivity Overcharging by five star hospi- for starting an interactive column Telemarketers
at post offices is known to every- tals, administrative style of TPAs on banking and insurance. Mr VK have long disturbed the John seeks to insure butt for 10 Cr
one. How would they assist a cus- which has a lot of flaws, thought- Dhingra has been a well-known general public and now they There would soon be a first to insure derriere in Bollywood
tomer leaving aside their princi- less decision of insurance compa- banker and taking his advice by did even leave Finance Minister Pranab with John Abraham, who enthralled audience with
pal responsibility? I may sound nies and the hollowness of insur- subscribing to a magazine @Rs.30 Mukherjee. A call offering a home loan interrupt- a glimpse of his toned butt in 'Dostana',
cautiously pessimistic, but NPS ance regulator led to chaos in cash- is a privilege. I would request you ed the Finance Minister while he was having a seri- willing to do so for Rs 10 crore. Sources
must be given some time to shape less medical treatment. Confusions to start a similar column on taxa- ous discussion with opposition leaders Sushma reveal that the actor has decided to buy
itself. still remain; which company is tion. Swaraj and Arun Jaitely over logjam in Parliament. a policy that covers risk to his buttocks.
Anjana, Muradabad doing what, what is being done by Parijat, Mumbai A miffed Mukherhee blurted out, ""No, not now. Despite insurance of body parts being
I'm in a meeting." unheard of in India, some companies
SEND YOUR LETTERS & EMAIL: "They don't even spare me," he murmured after have come forward with such policies
disconnecting the call. Taking cognizance of the for the actor. If John manages to get
Address: Editror, Money Mantra C- 125, Sector- 19 Noida
incident, Telecom Minister A Raja gave direc- a policy, it would create a stir among
Email: editor.moneymantra@gmail.com
tions to ban unsolicited calls. the stars to get the body parts insured.
6 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 7
EP 3-35- alok.qxd 8/10/2010 8:38 PM Page 8
News Track
SEBI proposes new norms Bank with India
Post!
IT’S NEW
to help MF investors India Post may soon get banking license from the
Government. The Reserve Bank of India is soon
expected to announce draft guidelines for granting
EBI has issued revised regu- cent on the balance of the assets, pro- outstanding in each financial year. bank licenses to other institutions and India Post is
S lations to mutual funds pre-
scribing limits to issue and sub-
scription period, total expens-
es of schemes, including redemption
expenses, investment management and
vided that in respect of a scheme invest-
ing in bonds such recurring expenses
are lesser by at least 0.25 per cent of
the daily or weekly average net assets
In addition, SEBI has extended the
deadline for mutual funds to implement
the ASBA facility for new fund offers
to October 1.
a strong contender for banking license given its
spread across the country. It is important to note
that India post offers many banking facilities like
savings products, postal life insurance, pension pay-
ments and money transfer services already. The huge
advisory fees etc. The new regulations STUDYING BRAND TATA strength of a large branch network of 1.55 lakh would
would come into force with immedi- help in the strategy of the government to attain finan-
ate effect. It has said that a scheme cial inclusion. The idea was discussed recently at the
should be open for subscription for 15 inter-ministerial committee for financial inclusion
days instead of the 45 days as pre- and the committee recommended that with its ubiq-
scribed earlier, while refund of money uitous reach, India Post should actively position itself
would be made within five working to offer a low-cost and light-weight bank account.
days against the six weeks. The asset
management company should issue the
applicant, whose application has been
accepted, with a statement of the num-
UTI MF on cell
ber of units allocated within five work- In an effort to enable investors to initiate payment A model poses with the new Alto-K10 during its launch in New Delhi
ing days instead of thirty days. instructions through mobile phone, UTI MF has
In the case of an index fund scheme
or exchange traded fund, the total
launched 'UTI Mobile' along with mChek. It is built
on a mechanism of an ECS mandate and allows a
Inhale cash with O2
expenses of the scheme, including the customer to trigger an ECS request from a pre reg- State Bank of India has decided to offer banking services to mass-
investment and advisory fees should istered bank account through his mobile phone, es by connecting directly to SBI Core Banking System by Oxigen
not exceed 1.5 per cent of the weekly while the debit and settlement process takes place Web retailers. Under this initiative, the existing web enabled Oxigen
average net assets. In case of any other offline. If an investor wants to avail this facility, Retailers have been appointed as CSPs of its BC Sahyog Micro
scheme, it would be 2.5 per cent of the he/she has to initially fill in the registration form and Finance. As part of the service, biometric readers will record user
daily or average weekly net assets on submit the same to any of UTI Financial Centers fingerprints for banking transactions which includes cash deposits
the first Rs.100 crore, 2.25 per cent on or Karvy offices. After verification of ECS details, and withdrawals, money transfers to other SBI accounts. The limit
the next Rs.300 crore of the daily or the applicant will receive a confirmation subsequent of transaction at these outlets is Rs.10,000. The maximum bal-
average weekly net assets, 2 per cent on to which he can trigger payment instructions from ance for the accounts opened and being operated by these outlets
the next Rs.300 crore of the daily or his mobile phone. Currently this platform will allow is Rs.50,000. These outlets will be opened at locations away from
Former RBI Governor Bimal Jalan releasing a book 'Tata-The Evolution of a Corporate Brand'
average weekly net assets and 1.75 per written by Morgen Witzel (L), in New Delhi. only buying of UTI MF units. urban branches.
NEWS BRIEF
IRDA fines SBI Life More M-banking in future Now its LIC Nomura Health cover for workers RBI fines ICICI, StanChart Mobile branches allowed
For violating the file-and-use To ensure banking facilities at low costs, RBI may allow LIC Mutual Fund will be Government is considering a number of The Reserve Bank of India has fined To reach unbanked masses, RBI
guidelines, insurance regulator has mobile operators and other corporates to offer more renamed as LIC Nomura welfare schemes, including health private sector lenders- ICICI Bank and has allowed banks to open mobile
slapped Rs.10 lakh fine on SBI Life, financial services on mobile phones. If RBI gives nod to Mutual Fund consequently insurance, for domestic workers in the Standard Chartered Bank- with Rs.5 branches without its approval in
which has been asked to pay up the proposal, it will be possible to transfer money to the joint venture with country. It is mulling the lakh each. Standard Chartered has areas with less than 50,000 popu-
within 30 days from the date of the though mobile without utilising bank networks. And, Nomura Asset recommendations made by the task been penalized as the bank did not lation. A van with 2-3 officials
receipt of the order. IRDA said that bring in more services like Nokia Money that helps you Management Strategic force on domestic workers, which also furnish information regarding a foreign would visit these areas on specific
SBI Life inserted two clauses in the pay bills, transfer money and make cashless Investments. includes a provision for providing health currency loan facility arranged by the days. It should be stationed in
policy document 'Super Suraksha' payments. RBI would take a final decision on this issue Subsequently, the names insurance to the workers under the bank. On the other hand, another each location for a reasonable
after getting its clearance. The by the end of August. In its meeting, the ministerial of each of the schemes of Rashtriya Swasthya Bima Yojana (RSBY). lender ICICI Bank has been fined on time on specified days and speci-
regulator had issued two notices to panel also decided to allow all citizens to open a the fund will then be Currently, there are 17,280,964 grounds of violating the Know your fied hours. But the vans aren't
SBI Life, in September and ‘mobile linked no frills account for financial prefixed as LIC RSBY smart card holders across Customer (KYC) norms and money allowed to visit the places that
December. transactions. Nomura MF. the country. laundering standards. have co-operative banks.
8 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 9
EP 3-35- alok.qxd 8/10/2010 8:38 PM Page 10
News Track
Database to check Time limit for solv-
India this fortnight
GDP Growth
Cashless facility insurance fraud
Insurance regulator IRDA and
ing grievances
From now on, for receiving,
8.6%
(Last Qtr of FY10)
IIP Growth
(May 2010) 11.5%
available for trauma insurance companies have started to
maintain and share a database of
hospitals involved in frauds. In
addition, insurers have started to
registering and disposing grievances,
there would be a definite system with
insurance companies. Each type of
grievance will be required to have a
Export Growth
30% ashless treatment facility is like to look at the advisability and pre- maintain an informal network of definite time limit within which it
(June 2010)
Import Growth
(June 2010) 23% C likely to be restored very soon.
On July 31, chiefs of four pub-
lic sector general insurers met repre-
scribe some standard procedure as they
think appropriate.
Meanwhile, the association of pri-
customers going for false claims. The
health insurance industry paid out
4,087 crore in FY09 as claims, which
needs to be solved. Insurers would
have to ensure that a written
acknowledgement to a complaint has
Inflation Rate sentatives of private hospitals in Delhi vate hospitals has sought intervention was almost double the claims paid in to be sent within three working days
(June 2010) 10.6% to settle the latest row on withdrawal of government to settle the ongoing FY08. The industry, during these years, of the receipt of the grievance. It will
of cashless facility on mediclaim poli- dispute with insurers. It has said that recorded a claim ratio of more than also have to contain the details of "What
cies. As of now, all the de-listed hos- the demands of uniform rates (by 100%, implying that the claims paid grievance redressal procedure and the do you expect me
pitals have partially restored the cash- insurers) for medical procedures were exceeded the premium earned. time taken for resolution of disputes.
less facility for emergency, ICU, car- not plausible. It has said that if the gov- to do? Will I remain
diac care and trauma. ernment approved some nodal agency a mute spectator, if
Meanwhile IRDA has said that it for rating hospitals, they were will- MEET OF ‘NOBEL’ MINDS
will soon come out with draft norms ing to subscribe to rates as per these they (regulators)
We have done that would define terms like critical gradations. In addition, the quarrel like
illness and hospitalization cost. IRDA Association of Hospitals in Mumbai
enough to would lay down a standard definition has asked health insurance providers petulant children?
manage inflation. for major critical illnesses under health to offer cashless medical insurance My concept of
We expect to see insurance, which would reduce con- claims to patients at all hospitals till the
the effects in the fusion between TPAs, insurers and differences between the two groups are autonomy is not
policyholders. The draft regulation resolved. like that... It is not
second half of the would include standard nomenclature In between, the Delhi HC has
year because policy and procedures for critical illness, pulled up IRDA for its failure to sort good for the
actions act, or have standard preauthorization and claim out the dispute. Justice S. Muralidhar
economy."
an effect, with a lag. forms, and the standard list for exclud- asked the regulator to take immedi-
ed expenses in hospitalization. An ate steps so that patients who are
You will see them expert committee constituted by insured can get the facilities of cash-
manifested over the industry body FICCI has identified 11 less treatment. The court was hearing
PRANAB MUKHERJEE
next few months. critical illnesses, including cancer, a petition filed by Vishal Ahuja whose Finance Minister, said in the
stroke, kidney failure, and major organ 53-year mother, a cancer patient, was Rajya Sabha on August 9.
SUBIR GOKARN and bone transplant, among others. refused cashless treatment in the
one of the four deputy governors at The regulator has written to health Dharamshila Cancer Hospital and
RBI, said in Chennai on August 8. The Prime Minister, Dr. Manmohan Singh at the Lecture by the Nobel Laureate, Professor Amartya
ministry as well that perhaps it might other medical centers.
Kumar Sen on ‘Centrality of Literacy’, in New Delhi on August 03, 2010.
NEWS BRIEF
Exit load revised: Sundaram fund named as IDFC Fixed Maturity HDFC to add 250 branches: Cash transfer from WU: Now for the same can't be more than Rs. Credit card disbursal dips:
BNP Paribas Mutual Fund has Plan Yearly Series 32, close ended HDFC Bank has planned to open 250 NRIs and account holders of SBI will 10 crore. HDFC Short Term Plan gen- The credit card disbursals have seen
revised the exit load structure for its income scheme. The duration of the branches in the coming two years. be able to transfer cash from erates regular income via making a dip by 27% to Rs.19,579 crore
fixed income schemes such as scheme is twelve months and shall Now it has decided to concentrate on Western Union directly to SBI online investments in debt securities and year-on-year as on 21 May, 2010.
Sundaram BNP Paribas Flexible Fund mature on August 19, 2011. The expanding in semi urban and rural banking-linked accounts. Consumers money market instruments. Banks have refrained themselves
Short-Term Plan, Sundaram BNP scheme offers two options viz. growth areas of the country. could send money from any of the from increasing the credit card limit.
Paribas Income Plus, Sundaram BNP and dividend option. 3,70,000 global locations of WU to Key feature revised: Edelweiss
Paribas Gilt Fund and Sundaram BNP PNB to offer life cover: Punjab their SBI online account. MF has changed the exit load struc- Exit load revised: Bharti AXA MF
Paribas Select Debt - Short Term Vehicle finance deal: Hyundai National Bank has planned to offer ture of Edelweiss Diversified Growth has revised the exit load structure for
Asset Plan. Motors and United Bank of India life insurance in next three months. Limit for HDFC scheme: The Equity Top 100 (E.D.G.E Top 100) Bharti AXA Treasury Advantage Fund
have joined their hands to facilitate Earlier, the bank made an attempt to maximum amount for HDFC Short Fund, Edelweiss Nifty Enhancer Fund with effect from August 05, 2010.
IDFC MF unveils FMP: IDFC the customers with better vehicle foray the sector with a foreign compa- Term Plan has been revised from July and Edelweiss Absolute Return Equity Exit load of 0.25% would be charged
Mutual Fund has launched a new financing options. ny but later decided to part ways. 23 and now the application amount Fund from July 21. if units are redeemed within 15 days.
10 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 11
EP 3-35- alok.qxd 8/10/2010 8:38 PM Page 12
Farm Fresh
Policy rates hiked by RBI MARKET PERFORMANCE
Best Performers in group ‘A’ vs Nifty
t seems the government and the Reserve Bank of India
I (RBI) is losing the battle with inflation. All measures
and steps by them have not been able to ease down the
inflationary pressure. Even the Finance Minister, Pranab
Mukharjee was seen helpless on the subject when he stated
that "with high growth there has to be inflationary pres- 2010-11, the central bank has increased the short term lend-
(from 23-07-2010 to 09-08-2010)
sure". Well in the latest step, the RBI has once again increased ing rate for banks i.e. repo rate by 0.25%, making it to 5.75%.
the policy rates to suck the liquidity for bringing down the Also, the deposit rates, (from banks to RBI) i.e. reverse
inflation rate. With the monetary review of first quarter for repo, is hiked by 0.50% making it to 4.50%. This is the fifth
time in the calendar year when the policy rates have been
Fixed Deposit rates
increased. The
Bank Increased by
New projections: The projection of growth rate of the problem was made
Kotak Mahindra Bank 0.25% to 1.00% nation for the current fiscal has been increased by 0.5%. more serious by the
The RBI projects that the India's GDP rate will be 8.5% in
Union Bank of India 0.25% to 1.00%
2010-11 instead of 8.0% projected earlier. The projection drought last year.
Syndicate Bank 0.50% to 0.75% of annual inflation rate has also been increased by 0.5%. (Price) Expectations
HDFC Bank 0.25% to 0.75% The new projection for 2010-11 is 6.0%. generated by a
ICICI Bank 0.25% to 0.75%
Impact on common man: The deposit rates of the banks
specially the short term will increase. Subsequently, the lend- drought persist till
IDBI Bank 0.25% to 0.75% ing rates will also increase. With the increase in BPLR, the the next monsoon.
Corporation Bank 0.25% to 0.50% cost of buying (with loans) will also increase. The loans The monsoon had
Laxmi Niwas Bank 0.25% to 0.50%
for industries will also become costlier which could result Public float 10% for PSUs, not 25% been good and
in increase of prices of the products. To provide comfort to listed public sector undertakings, Union Finance Ministry
Central Bank of India 0.25% to 0.50% Impact on economy: The increase in policy rates could inflation in
has diluted the minimum public shareholding guidelines. As per revised guide-
Bank of Baroda 0.25% to 0.50% negatively impact economy. The various sources have been lines, listed PSUs would require maintaining minimum public shareholding of 10 wholesale prices will
projecting India to grow by 8.5 % to 9.0 % in current fis- per cent within a period of three years. On the other hand, it shall be 25 per cent
Allahabad Bank 0.25% to 0.50%
cal, which could now bear a hit. The step by RBI will impact over a period of three years for private sector companies. In addition, the clause
be well into single
Dhanlakshmi Bank 0.25% sectors like real estate and automobiles most. It can also of issuing at least 5 per cent equity every year for meeting the minimum public digit by December
Lending Rates (BPLR)
impact the operations of industries, specially the small and float norms has been done away.After revision, only 15 PSUs will be subjected to this year.
medium scale. This could result in bad output. However, the requirement of FPOs as against 35 estimated under the 25 per cent public float
Bank Increased from the central bank has said that it will be monitoring the situ- norm. The money coming out would be just Rs.20000 crore against Rs.125000 crore MONTEK SINGH AHLUWALIA
Union Bank of India 11.75% to 12.25% ation in every six weeks. estimated earlier. The PSUs, which would still need to come with FPOs include
Impact on banks: With such a high reverse repo the Deputy Chairman of the
Punjab National Bank 11.00% to 11.75% Hindustan Copper, MMTC, Neyveli Lignite and National Fertilizers. Before this
banks may like it better to park their fund with RBI instead Planning Commission, said in
Corporation Bank 12.00% to 12.50% revision, the listed PSUs were required to achieve minimum public shareholding Bangalore on July 31.
of lending it on a high risk. This will suck the excess liquidity of 25 per cent. The PSUs were upset about this norm as it would have affected the
IDBI Bank 12.75% to 13.25% in the system. The step of RBI has already forced banks to valuations.
increase the fixed deposit and lending rates.
NEWS BRIEF
Give exit option: SEBI has said dations, HDFC Ergo has enabled the Offer document filed: To
Rates lowered: Dena Bank has all investments including SIP/Micro Foray in insurance: Maruti
that fund houses should inform unit E-claim facility for health and person- launch Religare Nifty ETF, an open
reduced interest rates on its non resi- SIP/STP shall be 1% of the NAV if Suzuki India is planning to have a al accident policies too. Initially the
holders about the expense structure ended exchange traded fund,
dent external (NRE) and foreign cur- investors redeem/ switch out such general insurance firm for its cus- company provided the tracking facili-
that they would adopt going forward Religare MF has filed offer document
rency non resident (FCNR (B)) dollar investments within 60 months from tomers. It may tie up with an Indian ty for motor insurance.
(post 29 July). It has stipulated that with SEBI. It would be benchmarked
denominated deposits. New rates are the date of allotment. company to do so.
AMCs, in case the fund administra- with S&P CNX Nifty.
applicable from August 1, 2010. Trade credit cover: Bharti AXA
tion fee goes up as a result of new
Exit opportunity: LIC unit holders No for bank license: Looking rules, should give investors the General Insurance has planned to Minimum amount revised:
Exit load revised: IDFC Mutual has been given exit opportunity with- forward to set its feet in the infra-
option to cash out before implement- launch a trade credit insurance prod- DSPBR MF has revised the minimum
Fund has announced the revision of out any exit load after its deal with structure finance segment, IndiaBulls uct for the Indian market. The prod-
ing the new expense structure. investment amount under the institu-
exit load structure from August 9 for Japan’s Nomura. But the exit option has decided to stop the race for bank uct will cater to both domestic and tional Plan of DSPBR World Energy
IDFC Money Manager Fund- is not to applicable to unit-holders for license. It will quit the release of the overseas trade credit requirements of
Investment Plan - Plan A, Plan B and LIC MF Tax Plan and LIC MF Unit discussion paper regarding guide-
E-claim for health: Owing to the and DSPBR World Mining from
customer feedback and recommen- enterprises. August 1. Now, it will be Rs.1 crore.
Plan F. Accordingly, the exit load for Linked Insurance Scheme. lines for fresh bank licenses by RBI.
12 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 13
EP 3-35- alok.qxd 8/10/2010 8:38 PM Page 14
Special Report
“
1989. Talking about Asian Pacific There is a myth among offered positive returns. Year 2009
The Friday Effect
region, Wong and Ho had examined was even better with 59.57 per cent
the day-of-the-week effect on the traders that market indices Fridays showing affirmative returns.
Singapore stock market and found a often get supported on the There have been 31 Fridays in year
strong seasonal pattern of a low neg- 2010 till July and markets have been
ative mean Monday return and a high last trading day of week. closed on 3 occasions out of those 31.
positive mean Friday return. Leaving those 3 instances, on 14 occa-
ridays are last trading day of try to complete the trades on Friday that the mean Monday return was also In this write up, we have tried to sions Fridays have offered positive
F the week normally. Market
participants don't want to
leave the trades incomplete on
the last days. In other words, traders
and don't want to carry those in next
week. There is a myth among traders
and investors that the major stock mar-
ket indices often get supported or
defended on the last trading day. This
abnormally low and, at times, nega-
tive. To examine the weekend effect in
the US market, Keim and Stambaugh
used the data of S&P Composite Index
over a longer period 1928-1982. They
understand the Fridays in context of
Indian stock markets. We haven't done
statistical research like these gentle-
men. The data used in our study are the
daily closing values of Sensex, the
ative returns on the day. Looking at the
year 2004, on 60 per cent instances
Fridays gave affirmative results. Year
2005 was even better with 63.27 per
cent positive returns on Fridays. In
returns. Means Fridays offered posi-
tive returns on 50 per cent occasions
till now.
Thus, a clear trend is vis-
ible on Fridays. Above
phenomenon is called the 'Friday as well found the existence of a strong major index of Bombay Stock year 2006, there were 54.9 per cent mentioned data sug-
effect'. In this article, we tried to under- negative mean Monday return. Exchange, over the period of 1 January occasions when Fridays offered affir- gests that major stock
stand the significance of this effect on Rogalski had as well obtained a neg- 2002 to 30 July 2010. We have sim- mative returns. On the other hand, in market indices
the Indian equity markets. ative mean Monday return using the ply tried to look that how the Fridays 45.1 per cent instances it gave nega- often get support-
In the last 30-40 years, a number Dow Jones Industrial Averages and the have behaved as far as Sensex in con- tive returns. ed or defended
of studies have been done for the pur- S&P 500 Composite Index. cerned. In this study, we have left those But year 2007 showed a different on Fridays.
pose of examining seasonal anom- If we talk about weekend effect, Fridays when stock market was result with 47.92 per cent Fridays
alies in stock market returns. These Jaffe and Westerfield had examined closed. showing positive returns and 52.08 per
studies have been done in various the weekend effect in UK, Japan, In year 2002, there were 60 per cent Fridays with negative returns.
developed countries like UK, US Canada and Australia. They had found cent occasions when Fridays offered Though year 2008 continued the for-
and Japan to developing countries that these stock markets show a sig- positive returns. On the other hand, mer trend and on 51.02 per
like Philippines, Malaysia, nificantly negative mean Monday in 40 per cent instances it gave nega- cent occasions
Singapore and Taiwan. Using the return and positive mean Friday or tive returns. Next year was better with Fridays
daily returns of the S&P 500 Saturday return. There study showed 63.27 per cent positive returns on
Composite Index for the period that the mean Saturday return was sig- Fridays leaving the 36.73 per cent neg-
1953-1977, French had found that nificantly high and positive in com-
the mean Monday return was sig- parison to the mean Friday return. In
nificantly negative. Gibbons and fact, in Japan, there was trading on 36.7%
Hess had tried to understand the some Saturdays until
US market by using S&P 500 January
Composite Index for the period
63.3%
40%
1962-1978. They
found 60%
36.7%
63.3%
2005
40%
60%
2004
2003
2002
40.4%
49% 59.6%
45.1% 51%
52.1% 47.9%
54.9%
2009
2008
14 MONEY MANTRA August 31, 2010
2006 2007
August 31, 2010 MONEY MANTRA 15
EP 3-35- alok.qxd 8/10/2010 8:39 PM Page 16
VIEW POINT
Bill replaces the ordinance
On August 2, Lok Sabha passed the Securities
Securities And Insurance Laws Bill
REGULATORS MAY and Insurance Laws (Amendment and
Validation) Bill, 2010 that seeks to replace the
Tightening Noose DANCE TO FM TUNE!
ULIPs Ordinance. The bill provides that ULIP
is an insurance product and therefore it would be
regulated by IRDA.
The ordinance paved way for constitution of a
Over Regulators? SEBI-IRDA fight The ULIP ordinance
over ULIP To clear the confusion over ULIP, the
President of India promulgated an ordinance
SEBI had been of the view on June 18, 2010 and made it clear that
joint committee for resolving disputes over hybrid
products with some significant changes as envis-
aged in the related ordinance. Finance secretary
has been replaced by secretary, department of
economic affairs. RBI Governor has been made
that ULIP is an investment prod- ULIP is an insurance product. The vice chairman of the committee. The commit-
D C Gupta The argument that the FM is answerable within which they are to operate and in uct. IRDA didn't buy this opinion Ordinance provided for a Joint Committee tee headed by Union Finance Minister will com-
to Parliament does not justify him to be case of any violation or intransigence of and insisted that it was an insur- to resolve the disputes on jurisdiction over prise of Governor RBI (Vice Chairman) and 5
he way the tussle between SEBI the chairman of the Financial Stability the caveats the entities invite penalties ance product. Since insurance members- Secretary, Department of economic
T
hybrid products among financial regulators-
and IRDA was sought to be and Development Council (FSDC). After under the Act. We have appellate arrange- companies didn't register the the RBI, SEBI, the IRDA and the PFRDA. affairs; Secretary, Department of Financial
resolved by issuing an all the Finance Secretary is represented ments and even those orders can be chal- product with SEBI, the market The six member committee headed by Services and the chairmen of SEBI, IRDA and
regulator banned the same. Union Finance Minister Pranab Mukherjee PFRDA.
Ordinance in June 2010 by con- in the body and the Government can lenged in the courts under the law of the Ministry of finance asked IRDA had Finance Secretary; Secretary, Bill has changed the earlier position in the
stituting a statutory body of the regula- always intervene when the need arises. land. The regulators supervise the oper- and SEBI to move court for a Department of Financial Services and chiefs
tors, headed by the Finance Minister, Finance Minister can command any reg- ation of these market entities and issue binding judgment. In the mean- Ordinance of allowing the Finance Ministry to
of RBI, IRDA, SEBI and PFRDA as its mem- refer matters to the committee. Now only the
which has now been passed by the Lok ulator to explain the position, seek clar- further directions as and when the need time, government issued the ordi- bers.
nance. financial sector regulators can refer matters to
Sabha a few days back with some amend- ifications and issue directions. arises. Let us also remember that the reg- joint committee. This reference could happen
ments is rather intriguing. I had argued ulators have to also respect the autonomy when the high-level committee on capital mar-
in my earlier article for making some Independence for regulators of various institutions under their con- “It was true there were lots of apprehensions whether we are kets (HLCCM) process fails for hybrid products.
statutory arrangements considering that The various Acts which are proposed trol and do not interfere in their work- going to dilute the regulators' independence or autonomy. It The proposed law will not interfere in the auton-
will only be in the case of jurisdiction disputes between the omy of financial regulators.
all regulators exercise their powers under to be amended could be amended to ing unless some violation of the regula- regulators that the joint mechanism will be used.”
some Acts of Parliament and that such incorporate the powers to the tions is noticed. International best prac- Pranab Mukherjee, Union Finance Minister
contingencies like ULIPS may arise in Government to resolve the inter-regula- tices are also sought to be enshrined in the in the Lok Sabha on August 2.
future given the complex nature of vari- tory disputes on case to case basis. There regulations so as to generate confidence
ous financial products which may emerge was no need to create a statutory Council, in the independence of the regulatory
later as our markets become more sophis- headed by the FM, as a standing arrange- mechanism in the market which is one
ticated. ment. This sends a wrong signal to the of our important assets from the point
world outside about the independence of view of the global players.
How fair? of our regulatory mechanism which is a Prescribing that the FM will preside
Administrative arrangements like very important edifice of our financial over such a body, which will sit on judg-
HLCC (a high level coordination com- architecture internationally. Finance ment on various inter-regulatory issues,
mittee, headed by the Governor RBI, in Ministry should keep a respectable dis- will not only erode that confidence in
which Finance Secretary is also repre- tance from the regulators to impart them popular perception but also make the
sented) may not succeed because the reg- objectivity and impartiality. It is a com- Finance Ministry involved in such dis-
ulators are entitled to take a view within mon experience that this might result in putes right in the beginning. Let us not
the meaning of the relevant Act in which ministerial bureaucracy making inroads forget that such a body is not the final
they operate and their orders are justifi- in the territory of the regulators as the adjudicator of such matters and such mat-
able and can be challenged in the court time passes and this may happen with ters could be agitated in the courts of the
of law as it happened in this case. At the or without the FM wanting to do that. law. From this angle also, present
same time it was pointed out that an arm's Similar trend may emerge in other arrangements proposed do not offer any
length distance has to be maintained by sectors like commodities market regu- distinct advantage, rather there may be
the Government as far as regulators are lation and such other emerging sectors allegations of lobbying by interested
concerned. This has been the accepted which might need independent regulation parties in arriving at a decision on a
policy since long and paid rich dividends like real estate. That will be a disturbing given matter. Besides the nature of the
and matured our regulatory mechanism development and until we reach a stage financial matters particularly issues like
and the market. There is no question of to establish a comprehensive regulatory ULIPS and other such market products
abandoning this shibboleth of the eco- body like that in the UK as and when we is such that it will not be appropriate
nomic policy. What has happened is just are ready, we should zealously guard the for the Finance Ministry to dabble at with statutory powers to resolve dis- hensive advice of this larger body while the UK and other countries with stiff
what was feared and the statutory body independence of the regulators in the the outset without eyebrows being putes among the regulators and a pro- arriving at a decision on a complex penalties to the violators. But the
by whatever name it is called is headed overall interest of the economy and the raised. vision can be made that in case of any issue. It essentially means that the important consideration should be to
by the Finance Minister in which all reg- consumers and other stakeholders. tangled issue, the matter could be HLCC should be clothed with statuto- avoid a perception that the autonomy
ulators are to participate. The amend- Need for UK-like regulatory referred to the higher advisory body ry powers. Let us not imagine devils and independence of the regulators is
Serves the purpose?
ments such as RBI Governor heading one Therefore, the most appropriate which can be headed by the FM. In in this arrangement. After all the reg- being eroded by such a mechanism which
of the sub-committees are not enough. In this connection we should also course of action appears to be that the this advisory body, the representation ulators are appointed by the is, however, being worked out in the gen-
The arrangements proposed will defi- remember the way the regulators oper- Council should be headed by the sen- could be more broad-based, including Government with due diligence and we uine interest of the effective regulations
nitely compromise the independence of ate and supervise various entities in their ior most regulator, be it Governor RBI eminent economists, financial experts, must respect their experience and matu- of the markets in the country.
the regulator, particularly the RBI, which domain. Regulators lay down the rules or anyone else, with representation of the stakeholders etc. The statutory coun- rities. The ultimate solution should lie (The writer is former finance secretary,
is not desirable at the current juncture. and regulations on the market players Finance Ministry and may be clothed cil will be benefitted by the compre- in the unified regulatory set up like in Government of India)
16 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 17
EP 3-35- alok.qxd 8/10/2010 8:39 PM Page 18
Tata’s Successor
Search Is C
I
n an atmosphere where brothers are often seen bat-
tling with each other for stakes, Tatas are keeping it
smooth. Tatas are perhaps the only big Indian group
where a formal process exists across levels for succes-
sion. The group has an official policy of retirement at 75
and maintaining the tradition, Ratan Tata will vacate the
office in 2012 when he turns 75 on December 28. Tata
Sons is the promoter of the group and majority stake of pro-
moters is not with a person but with trusts. Tata trusts have
65.8 per cent of the shares of Tata Sons. Over
half of the shares in Tata Sons are held
by two trusts, Sir Dorabji Tata and
Sir Ratan Tata Trust.
The big question- Who would
lead the Tata Group after Ratan
Tata? This question has been in
the air from many years, but
Ratan Tata has always refused
to answer this. Now a five-mem-
ber committee has been formed to
search for the successor of Ratan
Tata and the answer of this ques-
tion would be out in February-
March next year. The announce-
On
Why?: Ratan Tata is all set to hang his boots in December
2012. The group wants a successor well before he calls
it a day. The successor would be given an opportunity to
work with the legend.
The criteria: The person should be follower of the val-
ues and ethics of Tata Group and should be in his 50's.
The panel would seek someone with experience and expo-
sure to direct the group's growth amidst the challenges
of the global economy. But he would be judged for entre-
preneurial attributes and not mere management skills.
JUNCTION
D STREET
ment of the name of the suc- The committee: Cyrus Mistry, NA Soonawala, RK Krishna
cessor in the year 2011 would Kumar, Shirin Bharucha and Lord Bhattacharyya will shoul-
mean that before taking things in der the responsibility of choosing the successor.
control, he would get opportuni- Committee will be screening candidates from three talent
ty to look at things from perspec- pools- executives within the group, Indian professionals
and global managers.
tive of Ratan Tata.
Not an easy task- But the The contenders: Noel Tata has emerged as a main con-
task would not be easy for the tender within the group. Cyrus Mistry, a member of the
successor. Though the group panel, is the son of Pallonji Mistry (who holds 18 per cent
is big, it has not yet estab- stake in Tata Sons) and brother-in-law of Noel Tata.
lished itself as a global brand. The challenges: With almost 65 per cent revenues from
Though almost 65 per cent outside India, the company is still not known as a global
revenues of the group are generated from outside India, company. The successor would have a tough task of devel-
the company is still not known as a global company. The oping the group as a global brand. The $71 billion group,
successor would have to face this challenge. If we go by with 98 companies, would seek direction from him. The fate
with the hints, the ideal candidate would be one, who is of Tata Sons companies, of which 28 are listed, would
depend on the approach of the future leader.
in his 50's, holds values dearly and is a visionary-cum-
fire fighter. stated and that the person should become known for fill-
Tata's expectations- Earlier this year, Ratan Tata had ing up the position and not just waiting in the wings. I
told reporters, "I had said that after (launching small-car) know what happened in my case." Noel Tata has been
Nano, it will be a good time to step down. I still have a dead- constantly mentioned in the media as a likely successor. But
line for my retirement. I do have the responsibility to have he was not given big responsibilities in the group. This rais-
a successor and both these things will take place." The es a question whether the group is grooming him as the suc-
legend has been known for his extraordinary decisions. cessor or not, though a few days back Noel moved to Tata
Since taking over the group as chairman in 1991, he has International as managing director from Trent. There are
shown that he is not afraid of bold moves. And once he several other names which are doing the rounds. But with
had also said that he may consider handing over the reigns the process of search gathering momentum, Ratan Tata is
to a non-family member, non-group member and even to all set to keep his words (about retirement) as always.
a non-Indian. On yet another occasion, drawing a picture Once he had said, "I do not want to go out on a wheel-
of the future chairman, Ratan Tata had said, "It should be chair."
18 MONEY MANTRA August 31, 2010
EP 3-35- alok.qxd 8/10/2010 8:39 PM Page 20
C JUNCTION
Later in the fortnight gold fall was Silver MCX continuous
Demand for yellow metal arrested after China's central bank
released a statement allowing traders to
import and export gold, in addition,
softens, may rise again allowing overseas companies more
access to gold trading. The banks stat-
ed that increase foreign members on the
Anjani Sinha rency rallied more than +2% against the Most European banks passed stress tests Shanghai Gold Exchange and will also
dollar while the yellow metal plum- designed to show their ability to with- study ways to allow foreign qualified
meted. As Eurozone' crisis eases fur- stand a financial crisis, helping to push bullion suppliers to deliver to the
GOLD & SILVER ther, gold should remain under pressure the euro to an 11-week high against the exchange. China's plans to relax rules
Market Review in the near-term. Moreover, ECB's lat- dollar. Also the decline in holdings of on trading and weaker equities will
(21st July to 5th Aug 2010) est weekly financial statement shows the world's biggest gold ETF, SPDR increase demand. Recently China's cen-
The fortnight was mixed for bullion that it bought just 176M euro of Gold Trust, suggests the investment tral bank said in a statement it will allow
with gold posted net loss and silver Eurozone government bonds in the demand that drove prices earlier in the its banks to import and export more gold
posted net gain. Gold price slumped week ended July 23. This was the low- year is waning. Investments in precious as part of a program to push forward the
on as the result of the stress test was 'bet- est amount bought on weekly basis metal ETFs generally diminished. Rise development of the country's market
ter-than-expected'. This is reasonable as since the program began. Reduction in in risk appetite continued to shrink in the precious metal. This is part of
gold's rally in 2Q10 was driven by safe- bond purchases on one hand signals investment demand and gold ETFs the on-going effort to further liberal-
haven demand amid concerns over safe- increased stability in the Eurozone. On recorded net redemption for the sec- ize the gold market broaden gold's
haven assets. At COMEX, Gold the other hand, it reduced the risks of ond consecutive week as led by sharp appeal throughout China. China has softened as concerns over financial continued to be boosted by China's
December contract gained by USD high inflation as excessive liquidity was decline in holdings in SPDR Gold Trust. long been unable to fully explore gold market stability have receded. Gold deregulation in gold market. Since
6.8/Toz, while COMEX Silver pumped to the market. These outcomes The world's largest gold ETF declined demand. This is another step along that prices are caught between those China is one of the largest holders of
September contract gained by 65.80 were negative for gold. -635.52K oz, or -1.52% to 41.23M oz road. investors influenced by near-term defla- gold, this is positive development and
cents/Toz. MCX Gold October lost Bullion has slumped by around in the week ended July 30. Holdings Outlook: Gold's rally in May and tionary trends and therefore take a bear- will help gold rally. China's moves to
Rs.230/10 gram and Silver September $100 since reaching a record $1,265.30 reached a peak at 42.45M oz on June June was mainly due to worries over ish view of gold, and those who expect free up its gold market open the way
contract gained by Rs.384/Kg. At an ounce on June 21 on an easing of 29 2010 as worries over sovereign cri- euro zone's sovereign crisis and poten- that weak economic activity and the for foreign players and local banks to
NSEL Ahmedabad spot Gold lost European financial turmoil and on signs sis in the Eurozone boosted safe-haven tial disintegration of the euro but there threat of falling consumer prices will tap growing demand for the precious
Rs.344/10 gram and Silver gained by Rs the global economy is rebounding. demands. worries have markedly diminished. generate a monetary policy response metal, offering citizens a more attrac-
168/Kg. NSEL Demat E-Gold lost by Demand for physical gold investment that will ultimately be bullish for gold tive investment and promising to boost
Rs.28.60/gm while NSEL Demat E- Gold MCX continuous products- like ETFs, coins and bars has prices. On the other hand, Gold price the country's clout over global prices.
Silver gained by Rs.28.50/100 gm.
Gold headed for the biggest month-
ly drop in the month of July this year REFINED SOY OIL Refined Soy oil MCX
after recording a historic high. Market Review
Confidence among investors continued (21st July to 5th Aug 2010)
on supporting risk appetite thus, traders Soybean oil prices have experi-
targeted more high yielding assets and enced an impressive rally over the fort-
stocks, while discarding trades in low night and risen to their highest level
yielding assets and commodities, as since April in overnight trade, under-
both are considered a safe investment. pinned by strong demand and linger-
Gold lost both on weekly and monthly ing concerns about erratic weather in
basis as demand for safe-haven assets soybean growing areas in the U.S.
diminished after Euro zone's sovereign MCX near month contract closed at
crisis woes stabilized. Gold slumped 492.40/10 kg.
to a near 3-month low in the fortnight The big news to ignite a fire under
due to capital outflow from ETFs and markets was out of Russia stated that
liquidation of long positions before it will halt grain exports from August 15
recovering. Although physical demand to December 31. Russia, and for that
in India had shown signs of improve- SPOT MARKET PRICES matter the Ukraine, are not large oilseed Market Contract Open High Low close Prev. Net
ment as price dropped and upcoming Commodity Market Price Open Close Prev. Net importers. On the export side, the close change
wedding seasons boosted buying inter- Quote Close Change Ukraine exports sunflowers and prod- MCX Aug' 10 466.00 493.20 466.00 492.40 464.90 +27.50
ests, price remained weak as risk Gold NSEL Amd Rs. /10 gm. 18339 17980 18324 -344 ucts, and weather has had some impact than expected domestic inventories of the international CPO prices during
appetite improved. Silver NSEL Amd Rs./kg. 28360 28961 28793 +168 on prospects. Russian exports may fall soybeans. USDAannounced that China July month. Same is true for the soy
Gold tumbled as concerns for glob- to 11 or 12 million tonnes for the mar- had bought another 223,000 tonnes of oil also.
al economic slowdown triggered broad- FUTURES MARKET PRICES keting year begun July 1 this year com- soybeans for 2010/11. This is often seen CIF prices at the Indian Ports have
Market Commodity- Unit Open High Low Close Prev. Chg
based decline in commodities. pared to 22 million tonnes last year. as bullish news, these new-crop sales, increased significantly during current
Contract Close
Historical direct correlation between This price increase helped to pull other although frankly, China needs to buy month which has supported the domes-
gold and euro dissipated since elevation MCX Gold-Aug-10 Rs/10 gm. 18412 18480 17756 18109 18339 -230 agriculture commodity prices upward about 1 million tonnes every week if tic market prices. Stockiest demand has
COMEX Gold-Aug-10 $ / Troz 1194.60 1207.50 1159.40 1197.40 1190.90 -6.8
of sovereign crisis in the Eurozone in including soybeans. it is to fulfill the USDAforecast of about also increased. China which is one of
May. Breakdown of the relationship MCX Silver-Sep-10 Rs/kg. 28626 29394 28026 29014 28630 -384 The increase in prices was triggered 50 million tonnes or more in 2010/11. the biggest buyers of soy oil continues
was obvious last week as the single cur- COMEX Silver- Sep-10 Cents/Troz 1770.30 1869.80 1733.00 1835.80 1770.00 -65.80 by the USDA reports showing smaller On the other hand sharp rise is seen in its buying aggressively from the major
20 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 21
EP 3-35- alok.qxd 8/10/2010 8:39 PM Page 22
suppliers like US. In India, domestic toward their critical August growth peri- Stocks of soybean oil are near all-time
supply situation is although comfort- od kept a bid under prices as well. As per highs and the high temperatures this
able however demand has increased Soybean Processors Association of summer are usually associated with
considerably. Further, rainy season usu- India (SOPA), domestic soybean pro- above average soybean oil yields. Since
ally witness good demand. duction may decline this year to 85 lakh soybean oil constitutes roughly 40% of
Nevertheless, solid underlying support, tones as compared to last year's 95 lakh the value of a bushel of soybeans, its
with the threat of a dry spell in the U.S. tones, which is in favour of bulls. strength is bullish for beans. Strong
Delta raising fears of near-term supply Outlook:The catalyst for gains was export demand and ongoing concerns
tightness extending into the fall kept the advance once again in the soybean about potentially yield robbing heat
floor beneath prices. The uncertainty oil market. Fundamentals are seeming- stress in the U.S. Delta added support to
of weather for Midwest crops heading ly not all that great for soybean oil. buoy prices.
Cotton futures (ICE)
COTTON
Market Review
(21st July to 5th Aug 2010)
The international cotton prices rose
during the fortnight as export sales data
indicated continued strong demand for
the developing U.S. cotton crop is tak-
ing the earliest available supplies off
of the market. Support came from
renewed speculative fund interest in
commodities and the weaker dollar. The
US dollar slid on weaker than expect-
ed U.S. GDP data. The ICE future cot-
ton prices October delivery settled
increased 6.08 cents, or by 7.81%, at
83.94 cents a pound.
The cotton prices have risen more
than 7% in the last week as nearby sup-
plies continue to dwindle. World sup- Market Contract Open High Low close Prev. Net
plies are tight as textile demand rebound- close change
ed with the world economy in the last ICE (Cents/lb) Oct 10 84.15 86.00 83.94 83.94 77.86 +6.08
year. A bumper crop up 50% from last
year is expected from the U.S. in the increased by 5.9 million tons. World ning capacity in the country, is the
fall, but talk about the earliest portion cotton mill use is projected to contin- largest purchaser of Gujarat cotton.
of the harvest is already contracted to ue to recover in 2010-11, growing by The agro climatic condition in most of
mills has supported prices. The com- 2% to 24.9 million tons, pushed by con- the cotton growing areas is reported
mercial traders are particularly interest- tinued improvement in global eco- satisfactory.
ed in the spread. The spread is invert- nomic growth but limited by high cot- Outlook: The Global cotton price
ed, which means traders are willing to ton prices and a slowing "restocking is bullish near term due to world sup-
pay more to get the cotton sooner. effect." China and India are expected to plies is low after demand rebounded
The consumers put off buying socks account for 80% of the increase in glob- with the microeconomic conditions.
and sheets when budgets are tight. But al cotton mill use in 2010-11. Their The speculators and investors are buy-
resurgence in demand has drawn down combined share of world cotton mill use ing many agricultural commodities as
available stocks. Merchants have sold will increase by one percentage point to grain prices soar. Ideal weather has
a good portion of the earliest-harvest- 57%. In India, cotton prices firmed with fostered US crop growth throughout
ed cotton, leaving a lag in availability moderate demand. Cotton prices have the season. The quantum of raw cot-
through the rest of the year. At this surged in the range of Rs 300 to Rs 450 ton arrivals in various upcountry mar-
point, merchants could usually rely on per candy in the last week. The kets has reduced ranging around 3000
certified exchange stocks for a back- Shankar-6 prices in Gujarat were to 4000 bales per day comprising of
up, but those bales are being quickly quoted Rs 29,600-30,000 per candy. around 3000 bales in Gujarat and
drawn down. The world cotton area is New textile firms have come up in around 1000 bales in Karnataka.
expected to rebound by 10% to 32.90 Andhra Pradesh state, resulting in Looking to the demand in quality cot-
million hectares in 2010-11. Assuming increased demand for cotton. The ton vis-à-vis lower ending stocks, some
a small increase in the average yield, Gujarat government, on the other recovery has started in mill demand and
to 766 kg/ha, global cotton production hand, has levied a cess on cotton that the mills have started brisk buying. It
is forecast at 25.2 million tons, up by is sold out of State, owing to which is felt that the domestic cotton prices
15% from 2009-10. This gain of 3.4 cotton prices have surged by around in coming weeks may remain firm.
million tones would be the largest expe- 2 %. Tamil Nadu, which accounts for (Author is MD, National Spot
rienced since 2004-05, when output nearly 45 per cent of the overall spin- Exchange of India Ltd.)
22 MONEY MANTRA August 31, 2010
EP 3-35- alok.qxd 8/10/2010 8:39 PM Page 24
D STREET
The upward move likely to PUT CALL CONCENTRATION (July) OPTION STRATEGIES
Sell 5 lots 5200 Put @ Rs 18, buy
1 lot 5300 Put @ Rs 33 and buy 1
sustain in coming days lot 5600 Call @ Rs 15.
For traders who believe the Nifty
will keep inching towards new highs
Ashish Kapur phase in our markets. but confining itself in range may ini-
We retain our positive
“
Our advice to the traders would be tiate this strategy. This strategy will
In the past one month, our markets have outlook about the markets to focus on the mid caps which are like- give an inflow of Rs 42 and a fixed
shown tremendous resilience and ly to continue outperforming for some return of ~3% between 5300 and
strength. Even on days when global in the medium to long term more time. For investors though we rec- 5600. Above 5600, the 5600 call will
markets were weak, our markets and expect the October ommend a gradual profit booking in the start escalating the gains. Between
refused to give way to any significant mid cap space and buying large cap 5200 and 5700, the maximum gain
selling pressure. Keeping this in mind, results to be the trigger counters on declines. is 10% at 5200 and 5700 levels.
we expected the markets to move up that pushes the indices For investment purposes we retain Below 5165 the strategy will incur
on some positive trigger which could our positive bias towards losses.
have come in the form of better than higher. So, we advise Infrastructure, Metals and Banking sec- Buy 1 lot 5500 Call @ 102, buy 1
expected corporate numbers. investors to remain tors. Also certain stocks in the auto- lot 5400 Put @ 101, sell 5 lots 5000
However Q1FY11 results failed to mobile, oil and gas and FMCG space Put @ Rs 6 and sell 5 lots 5800 Put
deliver the necessary punch which the invested as the risk to too are good investment ideas. @ Rs 2.
markets were waiting for. Margin reward ratio, especially for With some caution in the near term, Traders who think that markets
pressures due to rising raw material markets look poised for a lucrative are likely to witness sharp movement
costs dampened the otherwise robust a long term investor, is still break out in the not too distant future. on either side in August month can
topline growth of many corporates. favourable. Nifty continues to ride the wave of trade this strategy. This strategy will
Rising inflation and its unlikely higher highs and higher lows signify- provide loss below 4920 levels and
reprieve in the short run turned out to ing uptrend. The upward move will sus- above 5850 levels. However in the
be the party pooper. be the trigger that pushes the indices tain as suggested by positive diver- given range (4920-5850) if the mar-
Going ahead, we might see some higher. So, we advise investors to gence in accumulation levels since ket closes between 5320-5550 the
short term marginal negativity as val- remain invested as the risk to reward May. Nifty touched a high of 5477.10 strategy will incur loss (maximum
uations, at least in the large cap space, ratio, especially for a long term investor, and fell to the levels of 5236.10 in July ~2.3%). In the range of 5000-5300
are on the higher side and profit book- is still favourable. Encouraging eco- month. Moreover, daily volumes are and 5550-5800, the maximum gain is
ing on the back of a lackluster earnings nomic and corporate growth forecast, also catching up with the pace of index. ~11.5% at 5000 level. The strategy
session and inflation concerns is immi- a good monsoon so far and viable Aseries of bullish candles in the month- also provides decent returns of 8%
nent. This downside though, would be measures to check inflation should ly chart seems to be signifying bull- at 5100 and 5800 levels.
restricted and we do not see a major cor- help sustain the secular bullish ishness in the near future.
rection happening anytime soon. There standing respectively in the August
is no major retail participation; a sig- NIFTY INDEX series.
nificant feature before any meaningful On the puts front we can see that
downturn starts is missing. Moreover 5300 and 5400 put options are the most
there is a continuous inflow of funds active and have the highest amount of
from overseas investors whereas, the open interest with ~ 100 lakh and 81
domestic retail segment is using every lakh shares outstanding in August
rise as an opportunity to sell and cre- A channel has been formed due to over bought zone has cooled off and is series. The active participation of 5000,
ate liquidity in their portfolios. The the formation of both higher lows and now seen moving sideways. 5100 and 5200 puts in the trade suggests
market is thus moving from weak to higher highs on daily charts. This for- The Put-Call Ratio for index options that there are many crucial support lev-
strong hands. This expected short term mation can be seen from past 11 months. increased to 1.53, giving a contrarian els between 5000 and 5300.
downtrend is a good opportunity to add Nifty is moving toward north to touch perspective of market, which is most- Looking at the above concentration
on some large caps, which have cor- the upper trend line. ly bullish. the likely range for the next few trad-
rected in the recent past, with a long NSE's volatility index India VIX, Nifty ended the last week of July ing sessions is expected to be
term perspective. which gauges traders' perception of with a loss of 82 points at 5,367. The 5200 to 5600. 5600 strike calls has the
Indices, however, are likely to near-term risks in the market based on index is presently trading at 5440-5460 highest interest signifying selling and
remain range bound for another two to options prices, closed at 18.33 points, levels and a good resistance comes in on the down side 5300 strike put is
three months. Stock specific action is remaining mostly in the range of 18- at 5487.15 while it gets its support at active which may be because of good
likely to continue to be the major avenue 25 points contributing to the optimism 5349.20. A breakout above 5,500 or amount of hedge created in the markets.
of profit generation. Mid caps and sec- wave in the market. below 5,330 might trigger the next On the whole, we reiterate, it is bet-
tors like banking, infrastructure and Analyzing the indicators, OBV (On move in the index. ter to sell deep out of money calls and
capital goods are likely to be the seg- Balance Volumes) significantly Analyzing the put call concentration puts as markets though bullish are not
ments that generate profits in the short bounced in the month of June and since we can see that 5600 call has the high- likely to break past and move signifi-
run. We retain our positive outlook then it has managed to swing upwards, est amount of open interest with over 86 cantly higher very soon.
about the markets in the medium to long with few dips in between. RSI (Relative lakh shares, followed by 5500 and 5400 (Author is CEO, Investshoppe
term and expect the October results to Strength Index) after scaling up near with 75 lakh and 48 lakh shares out- India Ltd.)
24 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 25
EP 3-35- alok.qxd 8/10/2010 8:39 PM Page 26
BROKER’S PICKS BROKER’S PICKS
Greenply Industries BUY CMP: Rs.195 TARGET: Rs.330 Dabur India BUY CMP: Rs. 198 TARGET: Rs. 224 (1-2 Quarters)
All set to witness a solid Premium valuation justified
Mehernosh K. Panthaki Dabur India : 3 months performance
growth due to product range DIL is one of India's largest FMCG
companies positioned as an ayurvedic
Ashish Kapur and herbal specialist with interests in
Greenply Industries: 3 months performance health care, personal care & food prod-
It is an interior infrastructure compa- ucts. It operates through four SBUs-
ny set up in the year 1984 and is also Consumer Care Division (CCD),
the leading producer of laminates and Consumer Healthcare Division (CHD),
plywood in India. The company has International business division (IBD) &
six state of the art manufacturing facil- Others. CCD is a major contributor to
ities across the country manufacturing DIL's revenue, which accounts for
products of global standards. It has 32 68.1% to the total consolidated revenue.
branches across India with a strong Recently, it also acquired 100 per cent
dealer/distributor/sub-dealer/retailer stake in Turkish personal care prod-
network of over 11000, presence in over ucts company 'Hobi Kozmetik Group'.
300 cities and it exports to more than 50 CCD would continue to remain a
countries world over. Its product ranges major growth driver. The division is
to flush doors, plyboard, plywood, dec- expected to grow by 15% in FY11. With
orative laminates, decorative veneers, the integration of Fem, CCD's revenue
particleboard and pre-laminated parti- contribution would stand at 69.9%, but Financial Estimations (Consolidated)
cleboards. It has wide variety of prod- would be slightly lower than in FY09 Rs. In Million
ucts brands like Green Club Premium (71.5%), mainly due to higher propor- YE March FY07 FY08 FY09 FY10 FY11
Ply with the guarantee of a lifetime, tion of sales expected from IBD. CHD Net Sales 20431 23611 28054 33914 39952
Green Decowood, Greenply Plywood, Key Indicators (As on Aug 07, 2010) to Rs.1600cr in 2011-12 is expected to grow by 15%, likely to be Other Income 259 340 468 394 453
Closing Price (Rs.) 195.6 Total Income 20691 23951 28523 34308 40406
Greenlam Laminates, Green The Indian interior infrastructure driven by launch of new OTC prod-
Lamieboard, MDF, etc. EPS (Rs.) 22.19 industry (plywood 60%) is poised ucts in H2FY11. OPM is expected to Total Operating Expenses 16934 19517 23350 27614 32461
P/E 8.83 to grow 10 percent over the foresee- improve on the back of better-cost man- EBITDA (incl. other inc) 3757 4433 5173 6695 7944
Investment Arguments BV per Share (Rs.) 123.3 able future. agement, operating leverage & inte- EBITDA (excl. other inc) 3497 4093 4705 6300 7491
Greenply Industries has reported a PB 1.59 Indian Real estate sector is expect- gration benefits. High food inflation is Interest 154 168 232 123 145
sales turnover of Rs 262.37 crore and Market Cap (Rs. Crore) 432.7 ed to grow from USD 14 billion to unlikely to impact the company's mar- Depreciation 408 421 492 562 682
a net profit of Rs 10.39 crore for the Beta 1.26 around UDS 50 billion by 2020. gins to a large extent, since only ~17% Profit Before Tax 3195 3844 4448 6009 7117
quarter ended Jun 2010.For the quar- Shares outstanding 2,20,96,680 Particle board & MDF segment is of input costs (sugar & vegetable oil) Tax (including FBT & DT) 387 516 540 985 1416
ter ended Jun 2009 the sales turnover growing at a rate of 25% where are dependant on agro-commodities. Reported PAT 2808 3328 3908 5024 5701
was Rs 177.61 crore and net profit was of the country's MDF requirements are imports having a share of around DIL, like other FMGC players, has Minority Interest -9 -1 -4 -8 0
Rs 10.92 crore. The actual net profit met currently by imports. The compa- 70%. a good track record of paying dividends PAT (pre exceptional items) 2817 3329 3912 5032 5701
for the quarter would be more, exclud- ny has received the FSC chain of cus- In 2009-10, the Indian economy consistently. The company is cash rich, Source : Company, HDFC Sec Estimates
ing the expenditure on MDF Plant. The tody certification for its units at grew 7.4%, primarily driven by the thus enabling it to carry out all its
overall growth in revenues and net prof- Kriparampur, West Bengal and Rajkot, manufacturing sector and the construc- expansion plans (organic & inorganic) almost debt free (D/E: 0.2), which pro- which has been witnessing a consis-
it would be substantial once the revenue Gujarat. tion sector. The eleventh five year plan through internal accruals. Also it is vides margin of safety during high inter- tent deterioration in market share of its
from MDF plant is in place. It's a highly fragmented industry predicts a shortage of more than 25mn est rate scenario. major segment Soaps & Detergents).
Stock Details
Good Quality and wide range of with share of unorganized sector being housing units in middle and low income Further, DIL's input basket (including
Equity Capital (Rs Mn) 870.0 Outlook & Valuation
products have increased the demand approx. 80% in plywood and around groups. In this high demand expecta- herbs & chemicals which are less
Face Value (Rs) 1.0
strongly. The capacity enhancement in 50% in laminates while the growth of tion, the company enjoys 30% of the Eq. Shares O/s (mn) 870.0 At CMP of Rs. 198.4, DIL trades volatile) is different from other FMCG
Laminate and MDF divisions of the the organized sector is 15-20% in com- organized plywood market and 18% of Market Cap (Rs Mn.) 1,72.647.7 at 30.3xFY11E EPS, which is at a pre- companies (like HUL, which has large
company and strong demand of Interior parison to overall industry growth of the organized laminates market in the Book Value (Rs) 10.8 mium to its peers like Colgate, HUL presence in soaps category which
Infrastructure goods led by growing per 5%, indicating the shift of customer country. And with the wide range of Avg. Volume (52 Week) 1,58,444 & Marico (quoting at 27.4x, 25.6x & exhibits high commodity linkage),
capita consumption of wood based fur- preferences. products, from value to volume, the 52 wk H/L 219.0/119.0 25.9x FY11E EPS). However this pre- which enables it to manage the infla-
niture products in India, it is expected foreseeable future of the company is mium valuation is justified, since DIL tionary pressure better. Other FMCG
that the company will record a very Outlook & Valuation very promising. Shareholding Pattern
has one of the most diversified portfo- companies like Nestle & GSK
(As on June 30, 2010)
good Operating and Financial per- Gross revenue for GIL has moved up At the current market price of lio amongst its FMGC peers (Colgate Consumer are quoting at 32.8x & 27.3x
Domestic Institutions 10.0
formance over the next few years. So, at a CAGR (compound annual Rs.195, the stock is trading at 7.1x and Non Promoter Corp 0.6
has a large presence in Oral Care, while CY10E EPS. We feel that DIL could
Greenply is expected to witness a solid growth rate) of 35% in the last five 5.9x for the earnings of FY11E and FIIs 14.8 Marico has a large presence in Hair trade at 34xFY11E EPS, which gives
growth despite an increasing trend in years. FY12E respectively and the EPS for the Promoters 68.9 Care) and has been steadily gaining its a price target of Rs. 224.
the raw material of the company. Greenply is expecting a growth in the earning FY11E and FY12E is Rs.27.7 Public & Others 5.7 market share over the years across most (Writer is associated
It is venturing into MDF where 70% revenues from Rs.980cr in 2009-10 and Rs.33 respectively. Total 100.0 of its product categories (unlike HUL, with HDFC Securities)
26 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 27
EP 3-35- alok.qxd 8/10/2010 8:39 PM Page 28
BROKER’S PICKS BROKER’S PICKS
KEC International Omnitech Infosolutions BUY CMP: Rs. 207 TARGET: Rs. 250
BUY CMP: Rs.488 TARGET: Rs.648 (12 months)
Adequately hedged against slowdown Superior margin to remain resilient
Hemang Thaker Aniruddha Mehta Omnitech: 3 months performance
KEC International: 3 months performance
KEC International is a leading trans- Omintech Infosolutions is country's
mission line EPC Company in the leading business continuity and disas-
world. The company has global foot- ter recovery services provider. Turnkey
print with client base spread over 43 IT solutions like Server & Storage
countries. KEC's 1QFY2011 perform- Consolidation, Virtualization, Network
ance was significantly impacted by the Integration Solutions and Data Center
inclusion of erstwhile RPG Cables Management Solutions are covered by
operations. Notably, the numbers are Omnitech. Company’s business is
not directly comparable on account of spread across the US, Canada, UK,
the merger of RPG cables with KEC Belgium, Bahrain and Japan. The client
during March 2010. Post the merger, the base encompasses sectors like BFSI
company reported 16.4% yoy increase (Banking, Financial Services and
in revenues, while EBIDTA margins Insurance), Manufacturing, Utilities,
dipped to 10% and PAT dropped by Services and IT & ITES. The technol-
32.6% for 1QFY2011. ogy service provider specializes in
KEC intends to spend ~ Rs100cr Business Availability Services (BAS - Key Financials (Consolidated)
on its tower business in the current fis- IMS & Application Management) and Y/E 31 March (Rs m) FY09 FY10E FY11E FY12E
cal. Capex planned for the cable plant Business Continuity Services (BCS - Revenues 1,717 2,615 2,972 3,568
at Vadodara is ~Rs.120cr over the next Disaster Recovery, etc). Revenues from you growth (%) 30.1 26.1 37.3 20.0
two years. Management expects the Key Financials (Consolidated) these services are estimated to witness Operating profit 514 693 974 1,176
Vadodara facility to commence pro- Y/E March (Rs cr) FY09 FY10 FY11E FY12E a CAGR of 32% and 41% respectively OPM (%) 29.9 32.0 32.8 32.9
duction from FY2012E generating Net Sales 3,427 3,877 4,563 5,223 over FY10-12 and drive the overall Reported PAT 331 394 540 624
~Rs400cr in revenues with EBIDTA % chg 21.8 13.1 17.7 14.5 company growth. Within BAS and yoy growth (%) 30.0 18.8 37.0 15.6
margins of ~7-8%. The government has Net Profit 116 171 216 256 BCS, we see Remote Infra Management EPS (Rs) 25.2 28.4 38.9 45.0
envisaged investment of Rs140,000cr % chg (32.5) 47.0 26.1 18.8 (RIM) services, Disaster Recovery and P/E (×) 8.2 7.3 5.3 4.6
in the transmission segment during the EBITDA (%) 8.8 9.9 10.0 10.0 Workplace Recovery services to record Price/Book (×) 2.1 1.6 1.2 1.0
Eleventh plan. This had opened up a EPS (Rs) 22.6 33.3 41.9 49.8 robust growth making the revenue mix EV/EBITDA (×) 5.9 4.7 3.3 2.7
potential US $14-15bn opportunity for P/E (×) 21.8 14.8 11.6 9.8 sweeter in terms of profitability. Debt/Equity () 0.2 0.2 0.2 0.2
the transmission EPC players during the P/BV(×) 4.5 3.6 2.9 2.3 Management also targets to increase the RoE (%) 30.1 25.7 26.5 24.1
Eleventh Plan period alone. ROE (%) 22.3 27.3 27.6 26.2 international revenue share from 20% RoCE (%) 33.4 28.4 29.8 29.5
KEC has a Strong international ROCE (%) 16.1 17.0 18.5 18.9 currently to 50% by 2013. Company has Source : Company, India Infoline Research
presence across geographies compared EV/Sales (×) 1.0 0.9 0.8 0.7
to its domestic peers. Notably, it has EV/EBITDA ( ×) 11.2 9.3 7.8 6.7 Sector : Information Technology guided for a strong revenue growth of Centers (in Mahape and Hyderabad),
executed large number of T&D projects Source: Company, Angel Research Sensex 18,081 30-35% for FY11. The Q1 FY11 per- revenue scalability would not be an
in over forty countries. Therefore KEC CMP (Rs) : 207 formance (7.7% qoq growth) instills issue for next couple of years. However,
is adequately hedged against slowdown hand, any delay or deferment in the reporting geographies of International Target price (Rs): 250 confidence that Omnitech would com- company may invest heavily in H2
in any particular region. On the other release of domestic T&D orders would and South Asia. Of the total order back- Upside (%) 21 fortably achieve its guidance. FY12 towards building capacity to
adversely impact the revenue projec- log, transmission accounted for 76%, 52 Week H/l (Rs): 211/72 With the current bouquet of serv- serve growth beyond FY12. Capex is
Sector Info tions of many domestic EPC compa- distribution & substation 18%, railways Market cap (Rscr): 272 ices, Omnitech earns one of the best estimated to be Rs1bn over FY10-12
Sector Capital Goods nies. Amidst such a scenario, we believe 4% and cables 2%. 6m Avg. Vol (‘000Nos): 229 margins (32%) amongst mid and small and which would be mainly funded by
Market Cap (Rs cr) 2,510 that KEC would be the least impacted No of o/s shares (mn): 13 IT services companies. Even factoring internal accruals. So the risk of equity
Beta 0.5 owing to its high exposure to interna- Outlook & Valuation FV (Rs) 10 intensifying competition and resulting dilution and leverage is minimal.
52 Week High/Low 640/416 tional orders. The transmission EPC companies pricing pressure, the margin is likely
Shareholding Pattern (%)
Avg. Daily Volume 12,895 Although telecom and railway divi- have been riding high on back of the June’10 (%) to sustain near current levels aided by Outlook and Valuation
Face Value (Rs) 10 sions currently account for small por- ongoing investments in the domestic Promoters 54.9 increasing revenue contribution from We expect Omnitech to deliver 28%
Shareholding Pattern (%) tion of the company's total revenues, power sector. Improving order visibil- Institutions 0.6 IMS (margin at 43%) and BCP servic- earnings CAGR over FY10-12 on the
Promoters 41.7 future prospects of the segments are ity from PGCIL and other state utili- Non promoter corp hold 14.8 es (margin at 44%) and also due to high- back of 31% revenue CAGR and mar-
MF/ Banks/ Indian Fls 41.3 very bright. KEC also plans to enter ties is expected to help KEC boost its Public & others 29.7 er share of international clients. We ginal improvement in margin. At 4.6x
Fii/NRIs/ OCBs 6.0 tracking, signaling and platform con- existing Rs5,650cr order book. At the Performance rel. to sensex expect Omnitech margin to be resilient FY12 P/E, valuation is at more than
Indian Public/Others 11.0 struction works in the railway segment. CMP, the stock trades at 11.6x and 9.8x (%) 1m 3m 1yr in the medium term improving by ~50- 50% discount to the median for mid-cap
Performance rel. to sensex The company's order intake for the FY2011E and FY2012E EPS, Omnitech 17.7 8.0 130.7 100bps over FY10-12E. IT companies. We expect a significant
Abs.(%) 3m 1yr 3yr quarter was ~Rs1,000cr. Order back- respectively. Glodyne 5.1 10.8 146.8 With headroom for significant uti- re-rating of the stock in the near term.
Sensex 6.3 15.1 20.3 log at the end of 1QFY2011 stood at (Writer is associated Allied Digital 2.2 (7.0) 7.8 lization improvement of Remote IMS (Writer is associated
KEC (8.4) 2.4 (20.0) Rs5,650cr equally split across the with Angel Broking) KPIT Cummins 7.4 18.0 164.5 facility (NOC) and Disaster Recovery with India Infoline)
28 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 29
EP 3-35- alok.qxd 8/10/2010 8:39 PM Page 30
Torrent Pharma OUTPERFORMER CMP: Rs. 556 TARGET: Rs.660 (12 months) State Bank of India BUY CMP: Rs.2620 TARGET: Rs.2700+
Growth momentum likely to sustain Moving up with a big lead
Nitin Agarwal
Torrent Pharma: 3 months performance Rajesh Jain State Bank of India: 3 months performance
Torrent Pharmaceuticals produces bulk
drugs and compounds in the therapeu- The stock market around the world is
tic areas of cardiovascular and central going up on the back of liquidity driv-
nervous system. Torrent Pharma has en rally along with changing positive
also entered areas like gastro-intestinal, sentiments. In India, the banking sec-
diabetology, anti-infective and pain tor was at forefront of the rally where-
management systems. Torrent Pharma's as the sugar sector took quite a beat-
(TPL) Q1FY11 revenues grew by ing. Since the markets look slightly
13%yoy to Rs5.2bn ahead of our esti- overbought, we have identified two
mates (at Rs5.1bn). EBITDA margins stocks which can be bought at correc-
at 18.4% were marginally ahead of our tion.
estimates (at 18%). Reflecting higher State Bank of India (SBI) is the
revenue growth and improved margins, largest commercial bank in India by
EBITDA came at Rs965m (we saw at almost every parameter - revenues,
Rs920m). Lower other operating profits, assets and market capitalization,
income (at Rs156m) saw PBT (at deposits and advances. In the year
Rs977m) track our estimates. Higher 1955, the Government of India nation-
tax rates (at 24%) dragged profits below alized the Imperial Bank along with
our estimates. Net profits grew by Key consolidated financials the Reserve Bank of India. Ever since cerely to adhere to the efforts of pro- Bank has a lot of support between the
391%yoy to Rs742m (we saw at FY08 FY09 FY10 FY11E FY12E that time, the bank acquired its pres- viding utmost customer satisfaction to levels of 2400-2450 where one can look
Rs805m). Adjusted for MAT write offs Net sales (Rs m) 13,123 15,865 18,239 21,179 25,668 ent name that is SBI. SBI provides a the best possible extent. to buy the stock keeping a stop loss of
in Q1FY10, net profits grew by 9%yoy. Net Profit (Rsm) 1,347 1,844 2,310 3,155 3,988 range of banking products through its The stock is at all time high and with 2250 for much higher levels of 2700+
Domestic sales and export con- EPS (Rs) 15.9 21.8 27.3 37.3 47.1 vast network of branches in India and banking sector taking a big lead, it in coming months. The stock made 52
tributed equally (50%) to its consoli- %growth 44 37 105 22 21 overseas, including products aimed at seems that banking sector would always weeks high of 2663 on 05.08.10 and
dated sales in Q1FY11. Domestic sales TPL remains committed and con- formance in Q1FY11 furthers over NRIs. The bank has been striving sin- see an inflow at any correction. State low of 1670 on 19.08.09.
grew by 8%yoy to Rs2.7bn in line with tinues to invest towards building up a confidence in TPL's growth outlook.
estimates with branded business grow- strong product pipeline and build-up Further, narrowing losses at interna- and ethanol are additional sources of
ing by 13%yoy to Rs2.2bn. Torrent Do
Brazil, Torrent's largest overseas sub-
of US, European and Brazilian opera-
tions. TPL has substantially scaled up
tional subsidiaries, robust balance
sheet health (net cash of Rs300m) and
Shree Renuka Sugars revenue, besides sugar. The compa-
ny possesses India's largest sugar
sidiary grew by 33%yoy to Rs887m. its expansion plans. TPL has already strong business fundamentals are BUY CMP: Rs.67 TARGET: Rs.85 refining capacity (4000 tons) per day
Torrent has commercialized 26products initiated development work at Dahej steadily adding to TPL's competi- across two integrated refineries at
in Brazilian markets and expects to wherein the company is setting up an tiveness. We derive confidence in sus- Shree Renuka Sugars, promoted by members, is a fully integrated sugar com- Munoli and Athani with a port based
launch 4-5more products over next 9 API and formulations facility specifi- tainability of TPL's growth momen- Narendra Murukumbi and his family pany. Co-products like power generation refinery in Haldia that enhanced
months. TPL's Mexican operations cally to cater to International markets. tum from the fact that TPL has sub- value-addition and export focus. It
clocked Rs20m of sales in Q1FY11. More importantly, we see TPL's stantially scaled up its expansion Shree Renuka Sugars: 3 months performance produces EC II grade refined sugar.
TPL has commercialized 6 products in aggressive capex guidance offering plans which is clearly reflective of Its phosphorisation process pro-
the Mexican markets till now. TPL's comfort on growth visibility particulars management's high comfort on duces sulphurless sugar for direct
German subsidiary (Heumann opera- business emanating from partnership growth visibility especially on the consumption and industrial usage
tions) posted flat yoy growth to deals with MNC Pharma. In addition, exports business. TPL now plans to in Africa and Europe. Shri Renuka
Rs690m. German operations con- construction activities at TPL's incur a capex of Rs10bn over the next Sugars has a track record of acquir-
tributed 26% of exports for the quar- Sikkim formulation plant were pro- five years against earlier guidance of ing units, either on ownership or on
ter. TPL's European (Ex-Germany) and gressing on schedule and company Rs6bn over 3years. We remain posi- lease to spur growth.
RoW business grew by 8%yoy to expects commissioning of this facil- tive on TPL's ability to significantly Renuka Sugars is one of the
Rs710m for the quarter. US operations ity by Q3FY11. TPL's capacity expan- scale-up its parenting deals with finest stocks in the sugar sector and
grew by 42% yoy to Rs270m for the sion at bulk drug and formulations MNCs like Astra Zeneca. Any likely has multiple supports between the
quarter on back of a lower base. TPL facility at Chattral is also progress- announcements on expansion of current levels of 55-60 where one can accu-
management indicated US business ing on schedule. Torrent's gross debt deals / signing of new deals will be key mulate the stock keeping a stop loss
may face some capacity constraints. and cash position end June 2010 triggers to watch out for. We maintain closing below 55 for much higher
However, management remains con- stands at Rs6.4bn and Rs6.7bn respec- estimates and expect 31% CAGR in targets of near 85 in coming months.
fident to address this issue by tively. TPL's earnings over FY10-12. We The stock made 52 weeks high of
December 2010. TPL has filed retain our Outperformer rating on the 124 on 07.01.10 and low of 52 on
48ANDAs and 19DMFs with USFDA Outlook and Valuation stock with a 12-month price target of 12.05.10.
till date and has already secured TPL's strong growth across geog- Rs660 (14x FY12E earnings). (Writer is Vice President & Head-
approvals for 20ANDAs. raphies and superior operational per- (Writer is associated with IDFC-SSKI) Research with SMC Global)
30 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 31
EP 3-35- alok.qxd 8/10/2010 8:39 PM Page 32
CLASSROOM
Technical Report
Participants in Commodity derivatives PIVOT
asset. Hedging is an insurance used to of transactions. Speculation is the oppo- Stocks Close S2 S1 Pivot R1 R2
Anjani Sinha avoid or reduce price risks associated site of hedging. A speculator holds no
with any kind of futures transaction. offsetting cash market position and SENSEX 18173.00 18069.00 18121.00 18208.00 18260.00 18347.00
Commodity market has different set Hedging allows a market participant deliberately incurs price risk in order NIFTY 5447.00 5415.00 5431.00 5459.00 5475.00 5503.00
of market participants who has got to lock in prices and margins in advance to benefit from price movements. A ABB 787.00 773.00 780.00 787.00 795.00 802.00
buying and selling interest in the trade and reduce the potential for unantici- speculator is an additional buyer of ACC 815.00 805.00 810.00 817.00 822.00 830.00
based on their requirement. pated loss or competitive disadvantage. commodities whenever it seems that AMBUJACEM 114.00 111.00 112.00 115.00 117.00 120.00
Terminology of the participants varies A hedge involves establishing a posi- market prices are lower than the actu- AXISBANK 1317.00 1292.00 1304.00 1324.00 1336.00 1356.00
in derivative market from that of tion in the futures market that is equal al price.
BHARTIARTL 325.00 320.00 322.00 326.00 328.00 331.00
physical market. In physical market and opposite to a position in the phys- Individual speculators tend to trade
BHEL 2525.00 2487.00 2506.00 2525.00 2545.00 2564.00
the participants are categorized broad- ical market. The principle behind estab- a smaller number of contracts than
ly under: 1. End buyer, 2. Primary lishing equal and opposite positions in hedgers and hold market positions for BPCL 651.00 633.00 642.00 652.00 661.00 671.00
seller, 3.Commission Agents, the cash and futures markets is that a a shorter time, so several of them may CAIRN 347.00 340.00 343.00 346.00 349.00 352.00
4.Brokers, 5.Stockiest, 6.Importers, loss in one market should be offset by be needed to offset one large hedge CIPLA 321.00 317.00 319.00 322.00 324.00 327.00
7.Exporters. While in the derivatives a gain in the other market. Hedging order. The maximum number of con- DLF 311.00 303.00 307.00 314.00 318.00 325.00
market, participants are categorized works because cash prices and futures tracts that can be held by any one spec- GAIL 430.00 421.00 425.00 434.00 439.00 448.00
as: 1.Hedgers, 2. Arbitragers, 3. prices tend to move in tandem, con- ulator is limited by exchange rules. The HCL TECH 414.00 400.00 407.00 412.00 419.00 424.00
Speculators. verging as the futures contract reaches small amount of capital needed makes HDFC 3029.00 2992.00 3011.00 3040.00 3059.00 3088.00
expiration. The degree of effectiveness speculating in futures contracts very HDFC BANK 2100.00 2035.00 2068.00 2098.00 2130.00 2160.00
Hedgers of a hedge is determined by the per- attractive. If the total value of the con-
HEROHONDA 1863.00 1834.00 1848.00 1868.00 1882.00 1901.00
Any person who has got the physi- centage of the actual gain or loss tract had to be paid, the rate of return
HINDALCO 165.00 163.00 164.00 166.00 167.00 169.00
cal exposure of the commodity as a incurred in a futures transaction. on most commodities would be
buyer or seller is categorized as hedger Though most hedges reduce risks relat- extremely small. The small margin pro- HINDUNILVR 255.00 251.00 253.00 256.00 258.00 261.00
in derivative market. Hedgers are inter- ed to price variations, they do not elim- vides speculators with the necessary ICICI BANK 955.00 940.00 948.00 960.00 968.00 981.00
ested in transferring risk associated with inate them altogether. leverage to generate a substantial rate IDEA 71.00 67.00 69.00 72.00 74.00 77.00
the physical asset. They use commod- Commodity futures markets pro- of return. On the other side it also gen- IDFC 184.00 178.00 181.00 185.00 188.00 192.00
ity futures to reduce or limit the price vide insurance opportunities to com- erates substantial risk INFOSYSTCH 2869.00 2834.00 2852.00 2879.00 2897.00 2924.00
risk of the physical mercials, merchants, producers and ITC 156.00 153.00 154.00 156.00 157.00 159.00
processors, against the risk of price fluc- Arbitragers JINDALSTEL 618.00 610.00 614.00 619.00 623.00 629.00
tuation. In the case of a trader, an Arbitragers are interested in making JPASSCIAT 118.00 116.00 117.00 118.00 119.00 120.00
adverse price change brought about by purchases and sales in different markets KOTAK BANK 825.00 809.00 817.00 828.00 836.00 847.00
either supply or demand change, affects at the same time to profit from price dis-
LT 1809.00 1793.00 1801.00 1812.00 1820.00 1831.00
the total value of his commitments. crepancy between the two markets. So
M&M 645.00 633.00 639.00 649.00 656.00 666.00
Larger the value of his inventory, larg- arbitragers are interested in locking in
er the risk to which he is exposed. The a risk free minimum profit by simulta- MARUTI 1226.00 1205.00 1215.00 1228.00 1239.00 1252.00
futures market provides a mechanism neously entering into transactions in NTPC 198.00 196.00 197.00 199.00 200.00 202.00
for the trader to lower the inventory risk two or more markets. An arbitrager ONGC 1242.00 1205.00 1224.00 1247.00 1265.00 1288.00
and his commitments in the cash mar- knows the minimum profit potential at PNB 1106.00 1072.00 1089.00 1102.00 1119.00 1131.00
ket (where actual physical delivery of the time of entering into transactions. POWERGRID 99.00 97.00 98.00 99.00 100.00 102.00
the commodity must eventually be Arbitragers lock in profits when they RANBAXY 447.00 442.00 445.00 449.00 451.00 455.00
made) through hedging. spot cash and carry arbitrage opportu- RCOM 173.00 170.00 172.00 174.00 176.00 179.00
nity or reverse cash and carry arbitrage RELCAPITAL 786.00 776.00 781.00 789.00 794.00 802.00
Speculators opportunity. Traders who continually
RELIANCE 1007.00 993.00 1000.00 1012.00 1019.00 1031.00
Speculators are those set of market watch the markets can see inconsisten-
RELINFRA 1117.00 1093.00 1105.00 1125.00 1137.00 1157.00
participants in the derivative market cies in pricing and can make relatively
which takes the call on price trend low-risk profits by arbitraging those RPOWER 158.00 155.00 157.00 159.00 161.00 163.00
without having any interest in physi- inconsistencies. In today's financial SAIL 198.00 195.00 196.00 199.00 201.00 203.00
cal commodity. These people based on markets, most arbitrage opportunities SBIN 2646.00 2560.00 2603.00 2633.00 2676.00 2706.00
the fundamentals of the commodity or occur either between regions, delivery SIEMENS 708.00 694.00 701.00 711.00 718.00 728.00
otherwise build the position in the periods, types of instruments (such as STER 177.00 174.00 175.00 177.00 179.00 181.00
derivative market. Commodity futures options to futures) or across a combi- SUNPHARMA 1763.00 1733.00 1748.00 1769.00 1784.00 1805.00
allow speculators to create high lever- nation of these conditions. In addition SUZLON 56.00 56.00 56.00 57.00 57.00 57.00
aged positions. Aspeculator accepts the to providing a low-risk benefit to trad- TATAMOTORS 861.00 833.00 847.00 857.00 871.00 881.00
risk that hedgers seek to avoid, giving ing companies, arbitrage helps the mar- TATAPOWER 1326.00 1311.00 1319.00 1331.00 1339.00 1351.00
the market the liquidity required to serv- ket in two ways: It provides pressure
TATASTEEL 538.00 531.00 535.00 541.00 544.00 551.00
ice hedge participants effectively by on prices to move to rational or nor-
TCS 878.00 859.00 868.00 875.00 885.00 892.00
providing the market with the necessary mal levels and maintains liquidity in the
bids and offers for a continuous flow markets. UNITECH 85.00 81.00 83.00 84.00 86.00 87.00
WIPRO 431.00 421.00 426.00 431.00 436.00 440.00
32 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 33
EP 3-35- alok.qxd 8/10/2010 8:39 PM Page 34
ASTROSPEAK
Market to perform better
going ahead
Kundli 16 Aug 2010, Time: 9:00 am, Place: Mumbai
Moon Mercury
7 5 4
Venus Sun
8 Mars, Saturn
6 Ketu
9
Rahu 3
10 Jupiter 2
12
1
11
Pt. Jai Govind Shashtri
e mail : jaigovindshastri@yahoo.co.in
Better Better Good
for intra- day for buying
Better day oper- commod- expected
for intra- ators. ity sector. in after-
day Auto, Sugar, noon.
opera- fertiliz- fertiliz- Bank,
tors. ers, avia- ers, jew- insurance, Markets Day of
Bank, tion, ellery, heavy are likely normal
insur- shipping, shipping industry, to be dull trade.
ance, jewellery and enter- education before 11 Higher
auto, Dull start, and tainment A day of and phar- AM.
Rumours volatility
pharma volatility FMCG sectors normal ma scrips Better
or gov- expected.
and IT expected scrips to may ben- trade. to perform A better buying
ernment Realty,
scrips to after an perform efit the well. But day for expected
It may be Profit engineer-
perform hour. announce well. investors. trade cau- markets. after this.
ment may a day of booking ing, fer-
well. Trade tiously.
affect the confusion. expected tilizers,
cautious- Don't in after textiles
ly move-
ments of expect too noon scrips to
market. much. between perform
rumours better.
and con-
fusions.
16 Aug 17 Aug 18 Aug 19 Aug 20 Aug 23 Aug 25 Aug 26 Aug 27 Aug 30 Aug 31 Aug
34 MONEY MANTRA August 31, 2010
EP-36-45.qxd 8/10/2010 8:43 PM Page 38
COVER STORY
"confident". Traditionally, the extend-
Average Household income
Literacy,
ed family and children have pitched in
during times of financial difficulty and
this mindset is perhaps one of the main (Rs. per annum, 2004-05 prices)
reasons for the optimistic outlook.
While half of those in rural India are The average increase in Household
either very confident or confident of the income will be about Rs.60000. Source of rural income: 2015
4,00,000 There will be no discernable gain Over 42% rural
stability of their income, the figure is HHs draw
for bottom 20%.
the D-Street
higher at 63 per cent for urban India. Hardly 13% HHs have a graduate income from Modern Industry
'I will recover loss within a year': 3,50,000 and above as a chief earner, non-farm Services 6%
9%
Households sustain themselves on their accounting for over 28% total sources.
savings during a financial crisis. The income. 9% HH engaged in Traditional
Agriculture 58%
perception that it will take them a cer- 3,00,000 Education attainment levels corre- modern services, Services 27%
%
tain time period to recover from a loss spond directly with growth in 40 with highest income
income. increase (200%).
of income, as opposed to their level of Consumer profile impacted more by
2,50,000
Dampener
confidence about the stability of their education than other indicators.
income is a clear indicator of the kind
of financial planning most families 2,00,000 37%
undertake. Interestingly, 34 per cent of
Indian households believe it will take
them less than six months to be able to 1,50,000 27%
replace their current incomes in the case
Is education a dampener for stock market? Contrary to of a disruption and another 21 per cent
feel it will take a year. Therefore, around 1,00,000
popular belief, people tend to shy away from stocks with a rise
2,19,000
1,60,000
55 per cent of Indian households feel
1,56,000
2,50,000
3,50,000
in their educational level. Sounds strange? Okay, answer
1,23,000
it will take 6-12 months to recover from 50,000
which age group invests more into stock markets? Believe me a loss of income, a figure that is rela-
this is a tough nut to crack. Anyhow, it is not the 25-45 age tively equal to the number that feel very
group but the 56-65 age group which prefers pouring its confident/confident about their future.
money into D-Street. Wondering from where I got these Since the interest income on finan- 2009-10 2015-16 2009-10 2015-16 2009-10 2015-16
inputs. In his report 'How India Earns, Spends and Saves: cial savings are not enough to sustain
Unmasking the Real India', Rajesh Shukla, Director, NCAER- a household for a whole year without Urban All India
any source of income, this implies that Rural
CMCR has dwelled upon the changing profile of Indian a large number of households that claim
investor. The findings are so astonishing, that wealth to be "very confident/confident" about
managers and consumer experts may need to revisit their the stability of their income plan to draw 81% HHs save for the future. 50%+ HHs are confident about stability of their earning source. 96% can’t survive
on savings beyond a year if they loose income source.
strategies. on their savings leave less for their post-
retirement life. While the figures vary
raditionally, India has been An overwhelming 96 per cent of house- across different socio-economic What motivates Indians to save? They cent households save for old age finan- urban households (74 per cent) than
T a nation of savers.
Profligacy has been looked
down upon and the saving
habit has been lauded as a
virtue through most of our fables and
stories. Not surprisingly, India boasts of
one of the highest rates of national sav-
holds feel that they cannot survive,
beyond one year, on their current sav-
ings in case of loss of a major source
of household income and yet 54 per cent
households claim that they are finan-
cially secure. Urban Indians appear to
be even more optimistic than their rural
groups, the broad trend is the same -
the majority believes they can restore
their current levels of income within a
year of loss of income.
'I can sustain it': During times of
financial crisis, due to the death of the
chief earner, illness in the family or job
save for future exigencies, for old age
security or for social ceremonies? To
the surprise of all, children are the
greatest motivator for savings. Indian
households rely more on their children
for social security than any other mode
of savings. They spend on children's
cial security. Future exigencies moti-
vate almost 83% of the people to save.
Village saves for ceremonies, city
for exigencies & old age: Village India
is more optimistic of its future than its
urban counterpart. When it comes to
saving for the revelries of life, villagers
rural ones (68 per cent) save for old age.
The Quantity Game
Urbanites are ahead in savings:
Nearly 81.4 per cent of households at
the all-India level save a part of their
earnings. But urbanites (88 percent)
ings at 28 per cent. In recent years, as counterparts. This clearly indicates that loss, a majority of Indian households education, save for their marriage and are ahead of urbanites. Not surprising- save more than their rural counterparts
the Indian economy has grown rapidly Indians do not take a long-term view draw on their personal savings. Nearly other ceremonies and buy insurance ly, while 64 per cent rural people save (78.5 per cent). It may be due to rural
and new employment opportunities of their financial security and hence 58 per cent urban households and 54 per cover to help their children in case of for ceremonies, with urbanites the fig- folks having less income and more
have risen, saving pattern has under- their optimism is misplaced and there is cent rural households dig into their per- any eventuality. Look at these figures. ure is just 60 per cent. Lavish life has optimism. This may be due to differ-
gone a sea change. New avenues of a pressing need for financial literacy for sonal savings during times of econom- Children's education emerges as a key different meanings for the rural and ence in the income of rural and urban
investment have propped up and better understanding of their financial ic hardship. The fact that households priority with 81 per cent households urban India. Urban India finds solace in households. The average income of
changes have been observed in spend- risks. draw on current savings to meet rou- saving to meet this requirement. Given modern consumer durables and rural households is Rs 51,922 compared
ing style. 'I have saved enough': Most tine expenditure in case of a sudden the fact that about 63% household save gazettes while rural India enjoys social to Rs 95,827 for urban households.
Indians are confident of living on their drop in income levels is borne out by the to meet the expenses on social cere- function and togetherness. And there- Salaried save more: Salaried class
The Great Indian Optimism savings after retirement. They are also fact that about 4 per cent of households monies like marriage, birth and other fore saving for purchasing large con- constitutes only 18 per cent of the
India is a country of optimists when sure of finding employment in case of claim that they can sustain themselves social functions, it makes children the sumer durable items is observed among households in the country, but account
it comes to financial security. More than a job loss. As a result, saving for old age for more than a year if they lost their greatest motivator for savings. Saving 29 per cent urban households as against for the highest amount of savings. Out
half the Indian households (54 per cent) is not a priority. At the all-India level, major source of household income. for old age, for buying house/car, con- 20 per cent rural households. While 87 of an average annual income of Rs
are confident about their current and 12.8 per cent of households feel "very sumer durables etc., for meeting the per cent urban households put away 110,344, the salary earning household
future stability. Unfortunately, this confident" about the stability of their The Motivators expenses of gifting, donation and pil- some money for emergencies, only 81 saves nearly 35 per cent. The next high
financial optimism is not based on facts. income, and another 41 per cent are Beta hamara bada naam karega: grimage takes a back seat. Only 69 per per cent of rural households do so. More income earning group (those who are
36 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 37
EP-36-45.qxd 8/10/2010 8:44 PM Page 40
COVER STORY
High-end products in demand Food accounts for the maximum Housing comes second
The growing village market
Product ownership among rural house- An average Indian household spends Urban households spend much
Marketers are increasingly looking
holds too is undergoing significant change. about three fourths of its income on rou- more than rural households on housing
towards rural consumers in a bid to grow
Nearly 73.6% of all black and white televi- tine (food, housing, health etc) and unusual (5.9% versus 3.8%) and education (8.7%
sales of their products. Given that rural
sions are owned by rural households. expenditure (ceremonies, medical, higher versus 6.4%) while the difference is mar-
India today contributes 56% to total nation-
Ownership of high end consumer products education, leisure etc) for financial year ginal in case of transport and almost at par
al income, 57% to total expenditure and
such as color televisions (regular and 2004-05. Rural households spend a little in case of health, clothing and consumer
33% to surplus income, marketers are
small), cars, mobiles, refrigerators, credit more than a third of their income on food, durables.
more than justified in reaching out to rural
cards, and so on is growing in rural areas. whereas for urban households it's slightly
households.
more than a quarter of their income.
SPENDING
100.0
Ownership of Goods: (% of Households that own products)
80.0
60.0
40.0
20.0
24 67 27 55 8 44 7 36 13 40 3 14 1 5 1 4
0.0
self-employed in non-agricultural the average household income is Rs Investment priorities for rural and India invests in financial assets. their surplus incomes in cash, mostly in their cash savings kept at home and only
activities) saves 32 per cent (Rs 65,041, annual expenditure is Rs urban households are different. Insurance is imminent: Salaried banks (68%) and 20 per cent as cash 32 per cent is deposited in banks. It is
95,020). For the next two groups - agri- 48,558 and surplus income is Rs Looking at specific investment types, households allocate a fourth of their on hand. Households engaged in non- interesting to note that the proportions
culture and labour dependent house- 16,483. A major portion of the surplus life insurance policies and stock hold- total savings to paying insurance pre- agricultural activities also have more or allocated to the three forms viz. cash,
holds - the saving rate drops to 20 per income (15-19%) is saved as cash, ings are more popular among urban mium but only 6.7 per cent towards less similar savings pattern as regular financial investments and physical
cent and 8 per cent respectively. while about 6 per cent is saved in phys- households while jewellery and con- shares and debentures. Financial invest- salary earning households. But in the investments are almost identical in the
ical assets, such as consumer goods, sumer durables are preferred options ments form only a minuscule percent- 'self-employed in agriculture' category, two top categories - 65 per cent cash
The Deployment jewellery etc. and only 2-3 per cent goes in rural households. Rural households age of savings for these households as the situation is quite different. These savings and 23 per cent physical invest-
Cash is king: At the all-India level, towards financial investments. invest in physical assets while urban they prefer to keep the major chunk of households have nearly 55 per cent of ments.
38 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 39
EP-36-45.qxd 8/10/2010 8:44 PM Page 42
COVER STORY Financial
Investment Physical
Rural household go for physical investment
Saving in cash investment
Saving 10.33%
56-65 AGE GROUPS LEADS IN STOCK MARKET
and urban for financial investment
INVESTMENT (PERCENT OF INVETMENT)
Investment
Children 24.46% ILLITERATES INVEST MORE
65.21% INTO STOCKS
motivate for saving: (Percent of total investment)
Nearly 83 per cent of Indian
households save for emergen-
cies, 81 per cent for child's edu- 100%
Others 7.6 Saving of surplus income (Rural)
cation and 69 per cent for rea- 9.7
sons of old age. 5.4 Financial
4.2 Postoffice
Investment Physical
Saving in cash investment
80% 14.3%
Gifts, donations and pil- 21.51%
grimages 64.19%
45.3 60%
Buy Large consumer goods
Cash Saving
Banks Saving of surplus income (Urban) 100%
Age
14.6 Others 15.4 gives the experi-
Improve or enlarge 62.6 ence to take risk: The 36-
business
40%
45 year olds invest more in
debentures (10%), as do 56-65
80% year olds. The 66+ age group
Buy or build house invests the largest share in con-
41.7 20% sumer goods (52%) at the cost of
shares and debentures and
23.4 Keeping at 32.3 jewelry.
Investment
Social ceremonies home 60% Consumer
39.1 goods
0%
Old age Urban Rural 12.8
40% 16.6 Jewellery
Rural
Education of
keep cash, urban Education
children repells from jewelry :
prefer bank: Urban house-
holds put nearly 63 per cent of The levels of investment in
Life Insurance 26.6
their cash in bank accounts, while 20% 16.7 jewelry bear an inverse rela-
Emergencies rural households put 45 per cent. A tionship with the levels of
much higher share of the savings is education.
6.7 Small savings 5.4
kept as liquid cash by rural
households (41.7%) than by 6.3 Stock Market 7.5
0 40 60 80 100
20 urban ones (23.4%). 0%
Rural Urban
Home safe home: Where are the declines considerably (from 45 per cent keeps 60%. levels of education of the chief earner segment. The savings of the 66 plus is more in debentures (10%), as do 56-
people keeping their savings? At home, for the youngest group to 29 per cent for Illiterates vie for shares, gradu- - while 23 per cent 'illiterate' house- only marginally higher. 65 year olds. The 66-age group invests
in their bank accounts or somewhere the 56-65 year old age group). ates for insurance: It's interesting to holds invest in jewellery, only 11 per Dependence on insurance the largest share in consumer goods
else? Bank deposits and keeping money Education & ageing makes bank note that educated feel secure with cent of the graduate households do so. decreases with age: All the groups (52%) at the cost of shares and deben-
at home have emerged as the two most a favourite destination: Owning an insurance while illiterates take risk and except the 56-65 years age group invest tures and jewellery to some extent.
preferred modes for Indian households. account in a financial institution opt for stocks (debentures). The edu- The Game Changer 22-23 per cent of their savings in life They save for the next birth:
Rural households (41.7%) prefer to pre- depends as much on the source of cated households invest 21-25% in As the chief earner gets older, two insurance policies. The 56-65 years age Households whose chief earners are in
serve cash than their urban counterpart income as on age and education of the insurance and 36-37% on consumer trends are observed. One, the motiva- group invests only 13 per cent of its sav- the 36-45 years age group form the
(23.4%). On an all India basis, half of chief earner. Predictably, fewer rural durables as compared to the 'illiterate' tion to save tends to change. ings in life insurance but this is com- major bulk of households in the coun-
all households keep more than half of Indians hold accounts in any financial households (14 per cent and 29 per cent Increasingly, the household feels the pensated by its higher investment try (35 per cent) followed by those in
their savings (51 per cent) in bank institution as opposed to urban Indians. respectively). While illiterate house- need to save for old age. Two, in (16%) in shares and debentures. the 26-35 years age group are the next
deposits, 36 per cent prefer to keep cash At the all-India level, 66 per cent house- holds invest a higher share on deben- absolute as well as relative terms, the Consumer goods gets priority: biggest group (22 per cent).
at hand and 5 per cent opt for post-office holds own accounts in a financial insti- tures (10.2%), the shares of graduate saving level increases. Consumer durable goods are a pre- Households with chief earners in the
deposits. Cooperative society deposits, tution - the figures for rural and urban and 'up to higher secondary' categories It has a cyclical trend: Savings, ferred mode of investment for the age group of 66 years and above con-
chit funds, purchasing bonds are some India are 59 per cent and 82 per cent are 5.3% and 8.3% respectively. both absolute and proportionate, steadi- youngest earners (less than 25 years) as stitute just 3 per cent of the population
of the other modes of saving. Only 2 per respectively. With increase in age, peo- Jewellery, a favourite of jacks: ly increases up to the age of 36-45 and well as the 26-35 year old and 36-45 but they make the highest level of sav-
cent households opt for purchasing ple tend to become more dependent on The levels of investment in jewellery then there is a sharp decline in the 46- year ones; investment in this mode ings ( Rs 21,196 per annum which is
insurance policies. With an increase in bank. While youngest group keeps just among different household categories 55 years age group which is followed ranges between 32-39 per cent. People 25 per cent of their annual income) as
age, the tendency to keep cash at home 41% of its savings in bank, old age class bear an inverse relationship with the by a sharp rise in the 56-65 years age in the age group of 36-45 year invest if saving for their next birth.
40 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 41
EP-36-45.qxd 8/10/2010 8:44 PM Page 44
INTERVIEW
'Education is panacea
for all the financial ills' ple are saving for their child's education. Education has
become the greatest motivator of saving. People are real-
ising that if their child is educated, he will be better equipped
to encash the opportunities. They invest into insurance so
that their child's education continues even in case of any
eventuality. See the difference. Once the majority of peo-
ple used to save for old age, but now they are saving for
child's education because they feel that an educated child
will take care of their old age.
Where do they spend?
It depends. Occupation profile, educational qualifications
and age of chief earners have a strong bearing on the man-
ner in which households spend their income. For lower
income households, emphasis is on basic food items but
as their disposable income grows, purchase of durables,
expenditure on health and education and investment-relat-
ed expenses come into play. Perhaps one common feature
among Indian households is the preponderance of 'unusu-
al expenditure' (social ceremonies, medical, education
and travel). Rural India spends more on social ceremonies
(55%) than urban ones (45%), while urban families have
a much higher spend on education (13%) than their rural
counterparts (4.7%).
Is there any shift in the mode of investment as well?
There has been a considerable change in the investment pat-
tern. Half of all the households keep more than half of
their money (51%) in bank deposits, 36% prefer to keep
cash at hand and 5% opt for post office deposits. As far as
mode of investment is concerned, life insurance and invest-
ment into consumer goods are the two most preferred
ave you observed any shift in the income profile So, you mean to say, that reservation in job is options of financial investment for salary earning house-
Mr. Rajesh Shukla, Director NCAER-Centre for
Macro Economic Research, is a widely
acclaimed statistician, an accomplished pshep-
H of Indian mass?
Yes, it is changing. Average income of an Indian has increased
not working…
What I mean to say is that educate the people. That is the
only way to improve their life style. In fact, the life style
holds. Such households allocate a fourth of their savings
to paying insurance premium but only 6.7% towards shares
and debentures.
and as our study suggests, there will be an increase of ----- of their coming generations will change if you educate them.
hologist and a visionary economist. He has been % in annual income by the year 2015. But this increase will Any marked difference in investment behaviour based
a technical advisor to several international bod- be city centric. There will be an increase in the income of As you said, there will be an average upsurge of 37% on rural/urban divide?
ies, including the United Nations Committee on rural India, but at a slower pace. The irony of post-liberali- in the income of Indian household. This may result Yes, there is. The share of physical investment of sur-
sation richness is that it has widened the gap between two into more inflation in the coming days? plus income is relatively more in rural household than in
Tourism Statistics, WTO, Spain. He has authored ends of financial pyramid. The share in GDP of those at the Clearly, there is a demand-supply mismatch in India. urban ones while reverse is true in case of financial invest-
seven books and several research papers. All bottom of the pyramid is not changing. Inflation is a natural outcome of this mismatch. Given the ments. Life insurance policies and stock holdings are more
his works reflect deep understanding of the sub- fact that the scarcity of food is going to remain due to pauci- popular among urban households while jewellery and con-
Have you identified the reason behind that? ty of agri-produce, increase in consumption, mismanage- sumer durables are preferred options of rural households.
jects and speak of authenticity. His book The In my opinion, education is the main culprit. Even if you pro- ment of PDS and illegal hoarding of grain, inflation is going To our surprise, illiterates are more into stock market invest-
Great Indian Middle Class received rave reviews vide people with opportunities, they can't take benefit due to remain, in fact going to increase in the coming years. ment than their graduate counterparts.
and forced marketing heads to revisit their to lack of skill. An educated person can take tuitions; per- There must be a price control mechanism to contain infla-
strategies. His recent work 'How India Earns, form DTP work, but an uneducated person can't. Even under tion. It's noteworthy that rich states like Punjab and Haryana Why so?
MNREGA scheme, government is not able to give 100 days are least affected by inflation. It is because they are not educated. India will have to
Spends and Saves: Unmasking the Real India' job to everyone because the type of work they can do is invest heavily into education. It is panacea for all the ills,
has won laurels from every quarter. He spoke limited. The roads built under MNREGA are poor in quali- In an environment of inflation, is there any change in all the sufferings. And people have understood its value;
to Awanish K Mishra about his book and its ty because these have been built with the help of unskilled the saving pattern of Indians? therefore children's education has emerged as one of the
people. Yes. And the crux of this change is that most of the peo- strongest motivator for savings.
inherent message. Here are the excerpts:
42 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 43
EP-36-45.qxd 8/10/2010 8:44 PM Page 46
Difference among 2D,
5D movie brings 3D, 4D and 5D
Disneyland to Delhi refers to a figure that has
length and breadth.
Bollywood has been screen-
ing 2D movies for years.
Shilpy Arora instead of amusement parks. So we
have brought something adventurous refers to a figure that has
ubbles and butterflies sur- in theatres," says he.
B
length, breadth and depth,
rounding you, rats crawling on Viewers are given special 3D glasses 3D movies add to the illu-
your legs, a ride through an to watch the movies. And you feel that sion of depth.
underground tunnel… what if you get objects in movie are flaking off the As this world is 3D, we can
to experience all this in a theatre? screen right at you. only feel the fourth dimen-
India's first 5D cinema theatre brings When asked about the response of sion. So 4D movies create
a multi-sensory experience. You not Delhiites, Rachit said over 40,000 a feel with live environ-
only feel the characters coming off the people have been to Bonzai. "We are mental effects in synchro-
nisation with movie.
screen as shown in 3D movies and live planning to expand our chain in other
effects like 4D movies but also expe- parts of Delhi as well," Rachit Is gravity i.e. a pull that
rience a full spectrum of visual effects revealed. attracts things downwards.
and motion seats which together cre- This is not all. Bonzai also presents So, effects in 5D movie
ate a five-dimensional experience. three unique mazes in 'The Lost could be gravitational
"I've never seen anything like this World'. Once you enter the maze, you waves, super-high-energy
particle collision, ultra-
before. I was amazed at the way they get lost in mirror maze, then horror powerful gamma-
have created visual effects in theatre. maze and finally a spinning tunnel ray burst etc.
Almost all effects seemed real here," maze which leaves an everlasting
says Puneet Malhotra, a viewer. experience.
Indian audience has seen 3D and 4D With a capacity of 32 seats, the theatre
effects in cinema. Now, with the tech- runs short films of about 15 minutes
nology boom, Indians see the first 5D in West Gate Mall of Rajouri Garden,
theatre, Bonzai. As one of the partners New Delhi. Currently,
Rachit Seksaria puts it, in 5D, you it is screening two ani-
watch a 3D movie and also feel what mated movies, Haunted
characters are feeling in form of pul- House and SOS Planet.
sating sound, rain, motion seats, wind Haunted Moon and Fly me in the
and thunder effects. "In cities like moon will be released in next week.
Delhi where there is extreme weath- While movie tickets are
er, people prefer to worth Rs.125, you can
go to malls enjoy 'The Lost World' in
just Rs.75.
44 MONEY MANTRA August 31, 2010
EP-46-90.qxd 8/10/2010 8:49 PM Page 46
FINANCIAL PLANNING TAXATION STOCK MARKET COMMODITIES MUTUAL FUND INSURANCE BANKING INDIA POST
Speed Clearing LIST OF MICR CENTRES WHERE
clearing requires the involvement of clearing houses. The source bank needs to SPEED CLEARING HAS BEEN IMPLE-
send the cheque to a clearing house. The clearing house first uses MICR tech-
Does your bank charge nique and then sends the details to the receiving bank. The receiving bank cred-
its the account of receiver as soon as it gets the details required for processing
the cheque. The major disadvantage of local clearing over speed clearing is it
requires the physical movement of cheque that takes time.
MENTED(AS ON NOVEMBER 30, 2009)
1.AHMEDABAD
2. ANAND
3. BARODA
33 GUWAHATI
34 HYDERABAD
35 VIJAYAWADA
for it? It's illegal Instruments processed through speed clearing
Cheques with transaction codes 10, 11 and 13
Only MICR cheques are processed through speed clearing
4BHAVNAGAR
5 JAMNAGAR
6 RAJKOT
7 SURAT
36 VISAKHAPATNAM
37 BHILWARA
38 JAIPUR
39 JODHPUR
one to know some basic facts about Only bank branches where core banking system is enabled can facilitate speed 8 BANGALORE 40 KOTA
Shilpy Arora What is speed speed clearing. clearing 9 BELGAUM 41 UDAIPUR
Demand drafts can't be processed under speed clearing. 10 HUBLI 42 JAMMU
r. Sahoo makes payment of his clearing? Features of speed clearing 11MANGALORE 43 DEHRADUN
M mutual fund via a cheque. In
April, when he sent a cheque
of UCO bank (from Orissa) to his AMC,
Usually, a bank collects cheques
which can be drawn in any bank
branch. The cheques that are drawn
in non-local branches are called out-
One can get an outstation cheque
cleared like a local cheque at the
receiving branch
How to know if a cheque is cleared via speed clearing?
Customers must ask for the CBS status of a branch. Many banks print CBS on
the cheque leaves. The best way to know the CBS status of your branch is to count
12 MYSORE
13 RAIPUR
14 BHOPAL
44 AGRA
45 ALLAHABAD
46 GORAKHPUR
it got cleared through speed clearing Speed clearing doesn't involve phys- the number of digits of your bank account number. If the number of digits of an 15 GWALIOR 47 KANPUR
station cheques. Speed clearing
at Hyderabad. The bank debited Rs.55 refers to fast clearing of outstation ical movement of cheques from the account number (which is printed on cheque) is more than 10, it indicates the 16 INDORE 48 LUCKNOW
from his account in the name of speed cheques. For instance, if a person source branch to the receiving branch cheque is from CBS-enabled bank branch. The customers can also check the web- 17 JABALPUR 49 VARANASI
clearance charges. living in Mumbai wants to send a Speed clearing facilitates cheque site of RBI. List of speed clearing-enabled bank branches is given on the website. 18BHUBANESWAR 50 KOLKATA
Like Mr. Sahoo, many people have cheque of Canara Bank to a branch of clearance in just two-three days as 19 CUTTACK 51 PANAJI
been paying speed clearance charges Canara bank in Gujarat, he can get against the previous process that used Time required for transfer of money 20 CHANDIGARH 52 KOLHAPUR
without knowing that no bank is autho- the cheque cleared in just 48 hours to take more than 15 days Usually, the transfer of funds takes around a week to three weeks. It, howev- 21 AMRITSAR 53 MUMBAI
rised to charge a penny if your cheque through speed clearing. Earlier, the er, depends on the location of the bank in the receiver's area. 22 JALLANDHAR 54 NASHIK
amount is less than one lakh. process used to take one to three Advantages of speed 23 LUDHIANA 55 PUNE
weeks' time depending on the situa- clearing over local clearing Fee for speed clearing
Speed clearing is introduced by the 24 CHENNAI 56 SHOLAPUR
tion of branch in the area of receiver.
Reserve Bank of India (RBI) for imme- RBI facilitates faster collection of Like speed clearing, the clearance RBI has made it clear that banks are not permitted to charge anything for the 25 COIMBATORE 57 AURANGABAD
diate clearance of outstation cheques the outstation cheques through speed of cheques is done through MICR sys- cheques of value up to one lakh rupees. The banks can, however, charge Rs.150 26 ERODE 58 NAGPUR
at no cost. Earlier, customers used to pay clearing. The speed clearing is facil- tem in local clearing but per cheque if the amount of 27 MADURAI 59 NEW DELHI
for the clearing of cheques under col- itated via core banking solutions. The local cheque is Rs. 1 lakh or more. 28 PUDUCHERRY 60 PATNA
lection basis. The whole purpose of core banking is facilitated to create 29 SALEM 61JAMSHEDPUR
introducing speed clearing gets a network of all branches of a bank 30 TIRUNELVELI 62 RANCHI
defeated if banks charge a clear- 31 TIRUPUR 63 CALICUT
ance fee. Hence, it is 32 TRICHY 64 ERNAKULAM
imperative for every- 65 TIRVANDRUM
66 TRICHUR
SpeedClearing
Step 4
The receiving bank credits the account of
Process of
receiver. The process that earlier used to take
more than 15 days, now takes just two-three
days. The time, however, depends on the loca-
Step 1 Step 2 Step 3 tion of reciever’s bank.
An individual deposits an
outstation cheque with
his bank branch. This
The source branch uses Magnetic Ink Character
Recognition (MICR) system and sends details to the
bank where that cheque is payable (receiving branch).
The magnetic characters provide important details i.e.
the account number, cheque number, bank routing
code and amount of the cheque required to process
Step 5
Receiver gets the amount free of cost i.e. no fee
For instance, if a person living in Delhi sends a cheque
bank branch is called the cheque. The source branch sends the information will be charged. But banks are permitted to charge
of HDFC bank in favour of someone living in Lucknow,
source branch. The to the receiving bank through core banking system. Rs.150 for cheques of over 1 lakh rupees.
the Delhi branch of HDFC will use MICR technique and
source bank sends the The movement of information takes very less time if
send the details to its branch in Lucknow. MICR charac-
cheque to a clearing compared to local clearing.
ters, printed at the bottom of cheque, can be read by
house. computers.
46 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 47
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FINANCIAL PLANNING TAXATION STOCK MARKET COMMODITIES MUTUAL FUND INSURANCE BANKING INDIA POST
Electronic Clearing Services provided by the Reserve Bank of India rights of the users of these payment costs and reduced clearing costs.
(RBI). Some of these bills could be systems, enhancing efficiency and Payments are automatically made
monthly EMIs, electricity bill, water competition, and ensuring a safe, on time, at the designated date,
Key Is Caution
bill, municipal taxes, telephone bill, secure and sound payments system. reducing dependency on the
insurance premium, MF premium The facility is still not available with human element. For banks, there's
(SIP), credit card payments etc. For every banking branch. that much less paperwork. There
availing this all you need to do is to is no room for losing the instrument
register for EMIs/bill payments with Advantage of ECS of payment in the post.
your service provider by providing ECS is a convenient, safe and eco- They no longer need to encode the
found that around Rs. 15,000 was that he needs not go to the bank again details such as name, account number, nomical way of collecting regular instruments, present them in clear-
missing from her account. It was the and again for any periodic name of the bank /branch, MICR code, periodic payments from a large num- ing, monitor their return and fol-
same holiday company which was payments/receipts. Suppose, if you etc. A cancelled cheque is a must to be ber of consumers, the process for low up with the customer. There
taking it on monthly Rs 5000 have to pay your monthly SIP of mutu- given to the provider along with this. which might take between 5 to 10 is also no value limit on the num-
basis. Jaya was confused how al fund, through ECS, your account will Similarly, various payments can working days. ber of individual transactions
this was possible that without be arranged with the MF provider in also be credited to your account auto- With ECS, there is improved fraud allowed.
giving any post-dated cheques, such a manner that the payments will be matically through the ECS way. This detection, reduction in expenses on To protect your account from
the company got away with the automatically transferred on the due is called ECS Credit. Some of these a per item basis, removal of geo- excess debits, you can select the
money. She complained to the date. With this, one need not have to could be payments of salary, refund graphical boundaries to deposito- top-limit for your account. If your
company managers who told that with go bank every month and make pay- orders for IPOs, interest warrants, div- ry relationships, no dual workflows bill amount exceeds the limit, the
the ECS, the company had the advan- ment. This reduces effort, time and cost. idend warrants etc. and periodical for paper and electronic deposits, payment will be cleared by the bank
tage of taking receipts for/on their investments made lower transportation and courier only after obtaining your approval.
Why is ECS needed? in the fixed deposits/shares, tax refund
ECS has an edge over the tra- etc. The user intending to effect pay-
ditional cheque-centric process- ments through ECS Credit has to sub-
ing systems, which are compar- mit details like name,
atively inflexible, expensive and bank/branch/account number of the
increasingly difficult to maintain. It
benefits both the banks and the con-
beneficiary, MICR code of the desti-
nation bank branch etc. to the paying
CHARGES
sumers by way of savings on adminis- institution. The institution will then Individuals are not charged for
money trative costs, printing, dispatch and rec- credit money in the beneficiary's the ECS facility, but institutions
from clients' onciliation. Somak Ghosh, group pres- account. are. The Reserve Bank of India has
account without ident (corporate finance & developing deregulated the charges to be levied
their prior consent. In banking), YES Bank says, "ECS is basi- NECS by sponsor banks from user insti-
fact, the form which she cally a retail payment system which can In October 2008, a centralised ver- tutions. The sponsor banks are,
signed and submitted, gave be used to make bulk payments or sion of ECS Credit known as National- however, required to disclose the
the company an authority of tak- receipts. It serves as an alternate and ECS (NECS) was launched. Before charges in a transparent manner. No
ing money. When Jaya asked why the cost-effective method of effecting bulk, this, the system was not centralised and processing charges are levied by
ECS system was not explained to her low value and recurring payment trans- was limited to a few cities and branch- the ECS centers; the same has been
before, the managers told that everyone actions." The ECS facility, introduced es. Now, NECS has no restriction of waived till March 31, 2010. Bank
Harish Kumar today knew about it and it's her fault if in early nineties, is more useful to com- centre or of any geographical area branches do not generally levy pro-
aya Mishra, a doctor with a reput- she didn't know or had not gone through panies and government departments in inside the country. The system takes cessing/service charges for debit-
J ed hospital in New Delhi, never
would have dreamt of how painful
her television buying could be.
Six months back she bought a television
which had an offer of paying first three
the fine prints of documents. The Rs
15000 television finally cost her Rs.
30,000 and that too without any holiday.
Had Jaya known about ECS before, she
could have saved the money.
making/receiving large volumes of pay-
ments rather than for funds transfers
by individuals. But now, according to
Ghosh, ECS is also applied to improv-
ing retail customer service by ensur-
advantage of the centralised accounting
system in banks. The branches partici-
pating in NECS can, however, be locat-
ed anywhere across the length and
breadth of the country. Banks are free to
ing the accounts of customers
maintained with them.
ECS Charges for Debit
Clearing
monthly installments for membership ing timely and safe interest/dividend add any of their core-banking-enabled Debit Clearing: Re. 1 per trans-
of a renowned holiday provider. Each What is ECS? payments to the beneficiaries. branches in NECS irrespective of their action + RBI or Destination Bank Charges if any, Minimum Rs. 2,750
installment was of Rs 5000. Jaya Electronic Clearing Service (ECS) location. Presently, around 32,000 Returning Charges on account of insufficient funds: Rs. 40 per entry
thought she will go for a couple of hol- is a system which allows the service ECS -Debit & Credit branches of various banks have joined Full waiver in respect of Income Tax Refund Orders: Nil
idays for the first three months and quit provider for an automatic transfer of With ECS Debit facility, automat- in NECS.
from the scheme afterwards when she fund from/into the client's account sub- ic payments of utility and routine ECS Charges for Credit Clearing
will have to start paying. The compa- ject to his prior one time approval. ECS monthly bills/installments are done Concerns in ECS Up to 10,000 entries: Rs. 3 per entry + RBI or Destination Bank Charges
ny asked her to fill the form and a can- is used for making regular from individual's savings/current There is also the risk that participants if any.
celled cheque of Rs. 5000. Till next payments/receipts to/from a defined account. Once you schedule payment are unable to meet their full finan- Above 10,000 up to 1 lakh entries: Rs 2 per entry + RBI or Destination
three months she tried thrice, asking for location. The idea behind the service through the bank, it has to be credited to cial obligations as expected. Bank Charges if any. Minimum Rs. 30,000.
holiday trips to various locations but the is to reduce the efforts of either party your service provider. The bill amount All electronic systems have to fac- Above 1 lakh entries: Re. 1 per entry + RBI or Destination Bank Charges
company denied saying, their so that they could reach at a quick set- is then debited automatically from your tor in operational risks such as sys- if any. Minimum Rs. 2,00,000.
resorts/hotels are not empty. tlement. In this system, the client's bank account and transferred to your tem downtime or operational errors.
Jaya met with a shocker when she account is arranged in such a manner service provider via the ECS service There is the question of protecting the
48 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 49
EP-46-90.qxd 8/10/2010 8:49 PM Page 50
Home Loan Junction
Banking the Home Loan EMI/Rs 100,000 for a loan amount of Rs 30 Lakh as on August 06, 2010
Allahabad Bank
5 years 10 years 15 years 20 years
FIXED FLOATING FIXED FLOATING FIXED FLOATING FIXED FLOATING
2212 2076 1449 1294 1233 1059 1119 965
VK way
Andhra Bank DP 2125 DP 1335 DP 1105 DP 998
Axis Bank 2327 2064 1553 1253 1332 999 1244 884
Bank of Baroda DP 2052 DP 1253 DP 999 DP 900
Bank of India DP 2076 DP 1280 DP 1044 DP 965
Bank of Maharasthra 2100 2052 1322 1253 DP 1014 DP 900
Bank of Rajasthan* 2100 2028 1294 1213 1044 956 932 836
Canara Bank DP 2076 DP 1280 DP 1044 DP 932
Central Bank of India 2125 2052 DP 1253 DP 1014 DP 900
Corporation Bank 2174 2064 1378 1294 1137 1044 1032 949
Virendra Kumar Dhingra is a post-graduate in Commerce with HDFC 2340 2040 1568 1227 1349 970 1262 852
over forty years of experience in banking. He retired as ICICI Bank 2432 2040 1675 1227 1469 970 1391 852
Executive Director, UCO Bank. Currently, he is Director, IDBI Bank 2174 2064 1378 1253 1137 999 1032 884
Industrial Investment Bank of India Ltd. Indian Overseas Bank 2076 2040 1294 1240 DP 999 DP 884
Indian Bank 2125 2088 1335 1294 1105 1059 1015 965
Jammu & Kashmir Bank 2174 2137 1420 1363 DP 1168 DP 1119
LIC Housing Finance DP 2088 DP 1280 DP 1029 DP 916
Sir, is there any harm if I am not using my cheaque tion of the customer. Dear Amit, Oriental Bank of Commerce 2137 2088 1335 1280 1105 1044 998 932
leafs (for a longer period) and operating my Sir, I had a credit card of HDFC bank. Despite Sometimes customers come across Punjab National Bank 2125 2100 1335 1294 1121 1059 1015 949
account through ATM only? I am afraid that the paying all the dues, my name has been put in such problems either due to mechan- SBI Easy Home Loan** 2028 2028 1213 1213 956 956 836 836
bank may declare my account inoperative. defaulter's list in CIBIL. I have all the records of ical fault or if ATM card is not insert- Syndicate Bank 2199 2064 1435 1280 DP 1044 DP 932
-H Kumar, Patna timely payments. What should I do for the removal ed properly but machine captures the UCO Bank 2162 2088 1378 1294 1152 1059 1066 965
Dear Mr. Kumar, of my name from the list? transaction without delivering the Union Bank of India 2112 2076 DP 1280 DP 1044 DP 932
All the developed countries across the globe -Puja, Kolkata cash. In such a situation, if ATM is *Bank of Rajasthan (Fixed) offers 9.5% for the 1st year, 10.5% for the 2nd and 3rd year, thereafter
11.75%. (Floating) offers 8% fixed for the 1st year, 9% fixed for the 2nd and 3rd year, thereafter 9.25%
adopted paperless banking practices long Madam Puja, off site, you must find out which is for loans upto Rs 30 Lakh. **SBI Easy Home Loan offers 8% fixed for the first year, 9% pa fixed for
back. In our country, though the practices were Generally, the name of the borrower is report- the link branch of SBI and immedi- second and third years, from fourth year for fixed interest rates 3.5% above base rate and for floating
introduced more than a decade back, it has ed to CIBIL only on continuous default and ately submit an application there giv- interest rate 1.75% above base rate, SBI Base Rate currently it is 7.5%. Scheme available upto - 30th
September 2010. SBI Fixed Interest Rates are subject to reset every five years.
yet to take roots. As long as you are operating that too after giving reasonable time and ing the details of the transaction and PN: The home loan rates are indicative rates, which may change according to the credit profile of the
your account either through ATM or by mak- opportunity to regularise the account. In your also enclose the copy of transaction customer. DP: Do not provide
ing use of cheque leaves, the account contin- case it appears that either payments made by sheet. A copy of application should Fixed Deposit Interest Rates (upto - Rs. 15 lakhs as on 6th August 2010)
ues to be an operative account. you have not been credited to the account for be sent to your bank Union Bank of BANKS 6mths - < 1 1–<2 2 – < 3 Year 3 – < 5 5 Years &
not following the prescribed procedure for India also. This step should be taken Year Year Year above
Sir, I have my bank account with HDFC bank in depositing your dues, or there may be inordi- immediately because cash has been Bank of Baroda 6.00% 7.00% 7.25% 7.25% 7.25%
Delhi. A few days back, I visited my branch office nate delay in a few transactions, which could delivered to you from SBI and unless Bank of India 5.50% - 5.75% 6.50% 6.75% 7.00% 7.00% - 7.50%
and tried to deposit Rs. 25,000 in my relative's be unintentional. The amount deposited by you SBI confirms to Union Bank that one Bank of Maharashtra 5.50% 6.50% 6.50% 7.00% 7.00%
account in HDFC Patna branch. But the offi- could be credited to some other account due transaction was fake and cash has Canara Bank 5.50% - 5.75% 6.75% 7.00% 7.00% 7.25% - 7.50%
cials at HDFC Delhi refused to accept deposit to some mistake while making the payment. been delivered to customer only for Central Bank of India 5.75% - 6.25% 6.75% 7.00% 7.25% 7.50%
for HDFC Patna branch. I met Branch Manager However, you should immediately send a com- one transaction, you may not get cred- Corporation Bank 5.75% - 6.00% 6.50% 6.75% - 7.25% 7.00% 7.25% - 7.50%
as well, but he was of no help. What should I do? munication to the Bank along with copies of it for the fake transaction. Dena Bank 5.50% 6.50% 6.75% 7.25% 7.25%
Is there any guideline from RBI not to accept all the documents for timely deposit of your Indian Oversea Bank 5.50% - 6.00% 7.00% 7.25% 7.50% 7.50%
cash deposit into third party account from dis- dues seeking their response that how could Sir, I work in sector 19, Noida and stay Oriental Bank of Commerce 6.00% 7.00% 7.00% - 7.50% 7.25% 7.50%
tant branch? your name appear in the defaulters' list of in sector 50. For convenience, I want- State Bank of India 5.25% 6.00% 6.50% 6.50% 7.25% - 7.50%
-KN Mishra, New Delhi CIBIL and seek their intervention to get your ed to open my bank account with SBI, Syndicate Bank 5.50% 6.75% 6.75% 7.00% - 7.25% - 7.50%
Dear Mr. Mishra, name deleted from there. The bank will defi- sector 19, Noida. But the branch man- 7.10%
After economic reforms and liberalisation in nitely and quickly respond to your request to ager is insisting that I should go to the Union Bank of India 5.00% - 5.75% 6.75% 7.00% 7.25% 7.50%
the banking sector in early nineties private sec- address your problem. branch located near sector 50. Is there Vijaya Bank 6.00% - 6.25% 7.00% 7.25% 7.25% 7.25%
tor banks came into existence with the latest any such rule” Axis Bank 6.25% - 6.50% 7.10% 7.35% 7.00% 7.00%
technology and the concept of 'any time any Sir, I have a bank account with Union Bank of -Niranjan Pandit, Noida Development Credit Bank 6.50% 7.00% - 7.75% 7.75% 7.50%
where' banking. The concept reflects that the India, Varanasi. One month ago I tried to with- 7.25%
customer does not belong to any specific draw Rs.5000 from the account using SBI ATM Dear Mr. Pandit,
HDFC Bank 5.75% - 6.50% 6.50% - 7.00% - 7.50% 7.50%
branch but belongs to the bank. Accordingly, in Delhi. In the first attempt, the transaction did- There is no restriction for opening of 7.00% 7.50%
Source: Apnapaisa Research Bureau
there should be no hesitation to any of the n't take place. When I made a second attempt, it bank account anywhere. But bank is
ICICI Bank 5.50% - 6.50% 6.50% - 7.25% - 7.75% 7.75%
branches of the bank to transact any business worked and I collected Rs.5,000. But the statement definitely responsible for proper iden- 7.00% 7.50%
on behalf of any customer. However, slip generated by ATM showed that Rs.10,000 had tification of its prospective customers. ING Vysya 5.25% - 6.25% 6.75% - 7.00% 7.00% 7.00%
Government of India and Central Bank of the been debited from my account. I visited the adjoin- They are under obligation to comply 7.00%
country i.e. Reserve Bank of India has taken ing SBI branch. They suggested me to register with Know Your Customer norms as
www.apnapaisa.com
IDBI Bank 6.50% 7.25%- 7.50% 7.75% 7.75
various measures to check money laundering. an complaint regarding the problem in the branch prescribed by RBI. If you are able to 7.50%
In view of these measures, cash transaction where my account is (i.e Union Bank, Varanasi). comply with all the required formal- The Federal Bank 6.25% 7.50% 7.25% 7.25% 8.00%
for Rs 50,000 and above needs to be support- What should I do now? ities of KYC, there should not be any
Kotak Mahindra Bank 5.75% - 6.50% 6.75% - 7.25% 7.50% 7.50%
ed with PAN card and necessary identifica- -Amit Sahoo, New Delhi hesitation to the branch for opening
7.25%
of your a/c with Sector 19-Noida.
50 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 51
EP-46-90.qxd 8/10/2010 8:49 PM Page 52
FINANCIAL PLANNING TAXATION STOCK MARKET COMMODITIES INSURANCE BANKING MUTUAL FUND INDIA POST
Exit Load a short term debt fund imposes such a
One year
load. When it comes to various debt
Think Before Quitting
When it comes to various debt funds, the time horizon of the investor has to be
funds, the time horizon of the investor
has to be matched with the nature of
the funds available in the market. A
mismatch here can suddenly change the
Avery popular way that has emerged
for equity funds is to have an exit load
for investments for a period up to one
year. This means that investments into
risk as well as have an impact on the exit equity funds if they are redeemed with-
matched with the nature of the funds available in the market. A mismatch here load front. in a period of a year (365 days) will have
can suddenly change the risk as well as have an impact on the exit load front. For example, very short term funds an exit load levied on them. Here the
like liquid schemes and money market strategy could change for the investor
funds will not have an exit load as this because there is a double benefit of
Arnav Pandya scheme when they sell their investment. keep track of the changes in the exit load is meant for investors who want to park avoiding the exit load. The first is the fact
Since this is a cost, it will ensure that the structure for all the schemes held by their money for a very short period of that holding the fund for a period of more
here is a new twist to the mutu- amount that comes to the investor after an investor. In such a situation it would time like a few days. However, there than a year will avoid the exit load but
T al fund investment process with
the exit load re-emerging as a
common feature across different types
the load is applied is lesser than the
value at which the transaction is under-
taken. The Net Asset Value (NAV) of
be better for investors to check the exit
load situation before they sell any mutu-
al fund units so that they know the exact
might be investors who are looking to
invest say for a 3-month period. In their
search for a higher return such investors
at the same time it will convert their
gains to long term capital gains where
there will be a zero rate of tax.
of funds. This has now come to occu- the fund is the price at which the position. might go towards a short term fund but There are also situations where the
py such a position that it can impact investor transacts but the exit load will The exit load is mainly used for the if this fund has an exit load if the invest- investor will not be able to wait for a year
the investment position in various ways. reduce the figure. So for example if the purpose of ensuring that there are no ment is redeemed before 6 months then Exit load is a cost that has to be for the purpose of selling the investment
For a long period of time all that the NAV of a scheme is Rs 40 and there is regular entry and exits at short time they will end up bearing a cost in their paid by the investor in a mutual either because the funds are required
investor worried about was the entry a 1 per cent exit load that is levied, then intervals by the investors. This kind of search for higher returns. The investor fund scheme when they sell their urgently or due to the fact that the gains
load but now that this has been abol- the net figure at which an investor will behaviour causes a disruption in the might have to search and invest in a fund investment. might not sustain. In such a situation they
ished it is the exit load that is often trip- redeem the money will be Rs 39.6. entire investment pattern as the fund that does not impose a load if they want would need to ensure that they do not
ping them up. There are several details Accordingly, the investor will end up manager has to scramble to redeem the to exit anytime after one month but Investors should check the exit lose the gains that they have garnered. In
here that are impacting the investment with a slightly lower amount than what investments. There are different aspects before three months of the investment. load situation before they sell case of equity-oriented schemes there
and the investor needs to be aware of they would have got had the exit load that need to be known when the entire The investors would thus need to do any mutual fund units. is nothing that is certain; so in several
how this actually works out. Here is a not been applicable. issue of exit loads has to be analysed their homework and maybe make a sac- cases it might be better for the investor
look at the entire issue and how as no investor would like to pay a load rifice somewhere while completing In debt funds, the time horizon to pay the exit load in case the returns
investors can cope with the situation. Change when they exit their investment. their investments. should be matched with the have shot up significantly. In equity-
There are times when the exit load nature of the funds. oriented schemes a 30-50 per cent return
Exit load is suddenly changed by the mutual fund Short term debt funds Debt funds and is not uncommon and in such a situa-
An exit load is a cost that has to be and this can cause quite a bit of problem One of the ways in which investors percentages In some schemes, load that has tion paying a 1 per cent exit load will
paid by the investor in a mutual fund for the investor. It is very difficult to can be caught on the wrong foot is when There is a very significant impact to be paid; so the investor not be a significant thing so the investor
that an exit load can have on the final should only try to reduce it. would have to take the decision keep-
returns from a debt fund and hence ing the situation and the context in mind.
it is very important for a person to Exit load can have significant
be aware of this. The returns from impact on the final returns from a Be aware
debt funds are quite low and this can debt fund. Ivestor should mind The investor has to be alert at all
range from anywhere between an that at all times. times because they want to avoid a sit-
average of 4 to 8 per cent depending uation where they are levied with an
upon the type and nature of the exit load under all circumstances. Even
scheme that has been chosen for investment is very significant. An this is possible and some schemes have
investment. In such a situation the investor might have remained in a a position whereby no matter when you
percentage of the exit load that a scheme for a period of say 3 months exit, there is some load that you would
scheme is proposing to charge has to and if the scheme has generated an end up paying. This could involve a sit-
be considered very carefully because annual return of say 8 per cent, then uation where the load is very high say
this can take a large bite out of the this might look good. For the investor, 2-3 per cent if the exit is till a year and
total returns that are generated by the however, the absolute return that has this would then drop to 1-1.5 per cent
scheme. This is important because it been earned comes to 2 per cent if the exit is between 1-3 years and even
makes no sense to earn 5 per cent because of the time period for which after that there is a 0.5 per cent load.
and then have 1 per cent being taken the investor was with the scheme (8 In such a situation no matter what the
away by the exit load. This would per cent for 12 months is an absolute investor does there is no way they can
mean around one fifth of the total fig- 2 per cent for 3 months) and now if escape the load and all that they can
ure being taken away from the the exit load is considered then this actually do is to reduce the load that they
investor. The net impact has to be con- could be significant. So if the exit load end up paying. So unless the investment
sidered because this is the figure that here is 0.5 per cent then around 25 per option is special or very good the
the investor will take home at the end cent of the returns are being given away investor should look at such angles too.
of the day. to the load and this significantly impacts (The writer is Chief Coach at FinCare
In other cases the nature of the the final return that the investor earns. Consulting)
52 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 53
EP-46-90.qxd 8/10/2010 8:49 PM Page 54
Insurance Policies “Term insur-
This is not true at all. The cheapest 'risk ance is ALWAYS
“I don't “I am not premium' is normally in case of a 'ris- the cheapest”
believe in ife insurance is one of those sim- Well if your wife cannot handle this sure which ing-term insurance cover', not 'level-
life
insurance!”
It's not a matter of belief. Life
insurance isn't a religion or
political philosophy. It is a
financial tool with a proven
L ple products like the door to a
house. It comes with some obvi-
ous advantages and nowadays reason-
“I have
invested
very well”
investment portfolio of yours, the invest-
ment returns cannot be as good. So,
your wife should know (you need to
teach?) how to liquidate all the invest-
insurance
to take”
term' insurance. However, in India there
is no 'rising-term insurance plan' avail-
able, so we end up saying 'term is the
cheapest'. Actually, in terms of 'risk
track record for protecting ably priced too! In fact this product has
ments and keep it in a bank fixed deposit charges' there are many unit linked plans
loved ones and ensuring almost no 'disadvantages'. Of course and/or an index fund. Keep it simple if which are actually cheaper.
their financial security. human beings are not always rational. she is not interested in investing.
People who believe in pro- There are many die-hards who can offer
viding for their families "To get the
interesting arguments and reasons for benefit I have
believe in life insurance. why they will NOT buy life insurance. to die!"
Here are just some of the things many Frankly, start with a term insurance. As
time goes by if you get more knowledge- In the event of your death, you
of us have heard over the years - some serious, some tongue-
able try to understand unit linked (called lose either ways. However, Oh My God!
in-cheek - along with my own reactions in some cases: variable in some parts of the world), would it not be better to make “I have
People still give
Well not a bad argument. However, "My planner tells Again nonsense. This product ties you to the plan whole-life (makes no sense if there is no sure that your dependants will be exhausted my
“I am single this excuse. You
if you are staying with somebody me buy 'Return of till the end of the plan. Meanwhile if a cheaper term Estate Duty), classic endowment etc. financially provided for? tax benefits”
and have no take life insur-
who has to take care of you the premium' term insurance plan were to be introduced, you will Being uninsured is not the right reaction. Besides, if you are fortunate ance because
dependants” amount of insurance can be like a insur- NEVER be able to migrate. Anything which reduces Learning about insurance is easy - but first enough to live to a ripe old age, you have risk to
'reimbursement' of expenses - final ance" your choices is bad, so is this. Buy the cheapest take term insurance to start with. it makes little sense to complain cover, not
stages medication, funeral term insurance from a company that you trust. that you didn't get to use your life because you get
expenses, etc. Sure if you are in insurance. Also, with endow- some tax benefit.
a position to leave cash for all these ment life insurance, your policy Even if all the tax
expenses then you may not need can accumulate cash value that benefits of own-
life insurance. However, you will you can use for any purpose. ing a house are
still need critical care insurance, taken away, you
medical insurance, etc. will still stay in a
I do not need insurance.
"I am a house. Will you
Complete nonsense. If
housewife" not?
your parents, uncles,
Don't we all? However, wouldn't aunts, anybody is depen-
“I want them to
miss me when
I'm gone!”
it be nice if they remembered us
fondly for having provided the
funds to help pay off the mortgage
No Reason to dant on you, you need life
insurance. Can you imag-
ine a situation where your
parents have to ask their “I need only
on the house. It is easier to cre-
ate hatred than to create love. Stop son-in-law for help? Think 2 years
being so full of ego, and get your hard do not go by what you salary as life
hear. Each situation is dif- cover”
SAY
simple term insurance.
ferent.
The life insurance industry surely exag-
gerates the need for life insurance.
However, how much life insurance you
need is a function of your life-style, bor-
rowings, income, number of dependants
“Why should I make Good point. That's just one reason some people etc. Thumb rules do not work - they work
her next husband select a structured payout of proceeds. That's also only for the thumb! Take trouble to find
(his next wife) rich?” why many people protect their spouse with life insur- out how much of life insurance you need.
ance. Life insurance helps create viable choices for It is much better to be slightly over-
loved ones. There is at least one insurance scheme insured (I have never heard a dependant
in India which pays a lump-sum and a monthly annu- claim 'my parent was over-insured'!!)
ity - your spouse will meet the day to day needs, not
Let the kids work
lead a life of luxury thanks to inflation. Do you expect
through college,
a 34-year-old 'widow' to close all options?
just like I did
We devote ourselves to helping our children get
“My company a good start in life. That means helping them to get a
gives me Completely wrong! Whether it is med- good education. Most of us cannot get to even charge
enough life ical insurance or life insurance cover, rent from our working children if they stay with us. If
(group) cover” the company provided group insurance we die prematurely, our children's lifestyle and dreams
is not enough. Companies are rarely could be threatened, along with their college dreams.
rational in their behaviour! What hap- Life insurance, however, can help provide the funds
pens if you are between jobs or the com- to make sure your children get a good education and
pany suddenly decides to yank away the a strong start in life. Even parents who are giving all
life/medical cover? You are always bet- their money to charity ensure that they spend on the
ter off with your own contract with the children's education. Jokes apart, education is one
insurance company. expense that should be treated like an investment,
not like an expense.
54 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 55
EP-46-90.qxd 8/10/2010 8:49 PM Page 56
FINANCIAL PLANNING TAXATION STOCK MARKET COMMODITIES INSURANCE BANKING STOCK MARKET INDIA POST
Trading Softwares that indicator. Spider Iris provides Event facility. It has the ability to place any
Tracker which has a built-in library of Analysis/Trading number of stocks to include in the Market
over 30 market events predefined for softwares Watch list and gets the Mark-to-Market
Take Guidance, Make Profit clients. Event tracking can be done on
all scrips or on a particular group of scrips
chosen by the trader. The end of the day
Metastock Pro
Offers RMO Trading system.
Provides Fibonacci Projections.
profit and loss calculations online. It
facilitates Order and Trade book func-
tions with fully customisable views at
(EOD) data is offered for BSE, NSE, all levels.
Alok Dwivedi Futures, MCX, NCDEX, major world Spider Iris Brokerages which are using ODIN
indices and major world currencies. It Offers advanced charting with Diet include- Angel Broking, Karvy
echnology is playing a vital role in every sphere of our lives and stock has BSE historical data from 1990 and over 50 indicators. Securities, Kotak Securities, Reliance
T market trading is no exception. Technology not only helps in choosing the
right stock, but also assists in taking a call on scrips. Software developers
are offering a number of softwares which can be helpful for technical
analysis. Also, there are particular softwares which help in fast and timely and fast
execution of calls.
NSE historical data from 1994 onwards.
The data update service is functional
round the clock.
The cost of this software is Rs 56000
per annum which includes price of soft-
Provides round-the-clock data
update service.
ODIN Diet
Facilitates higher accessibility and
availability.
Securities, Religare Securities and
Sharekhan etc. Besides their simple trad-
ing platforms, brokers are offering
advanced trading platforms to their
active clients and HNIs.
ware, data, installation, training and sem- Facilitates inclusion of any number Power Indiabulls: PIB is the
Charting Softwares inars. Renewal fee is Rs 48000 per of stocks in Market Watch list. advanced online trading platform from
Market participants are now using various types of technical charting analy- annum. According to the company, the Indiabulls Securities Limited. PIB pro-
Power Indiabulls
sis software for guidance. These provide more than 200 basic indicators of traders who work on the formula with vides various popular technical analy-
technical analysis and the system is becoming more advanced day by day. dedication achieve the strike rate of 75- Provides various trading reports sis indicators like Simple Moving
Market participants are taking their call on the basis of buy and sell recom- 90%. The company has 12,000 clients to cater to the distinct needs of Average, Stochastic and Relative
mendations of these softwares. Let us have a look on a few technical at present. customers. Strength Index etc. Besides, one can look
charting analysis softwares. Falcon-Equities, Derivatives: The Customer can access Net Portfolio at Market Statistics section to view the
Metastock Pro: MetaStock Pro offers the popular Rahul software is offered by Reliable Software. Report to view a list of stocks in day's top gainers/losers, most active and
Mohindar Oscillator (RMO) Trading system. According It offers live data for NSE. Besides it pro- his portfolio. most volatile scrips etc. For day traders,
to the company, the RMO model not only increases vides EOD data for BSE, NSE, Futures, it provides several trading features like
the trading accuracy but also significantly auto- Options, NCDEX and major world can be added, moved, resized and Intraday Charting, Hourly Tick List and
mates the analysis process. It provides Fibonacci indices. removed. Besides, IGS supports more Alerts to help them track the movement
Projections. With this, traders can detect and mark With the help of this software, cus- than 20 technical indicators which of underlying scrip/index during the day.
key levels of support and resistance and at the same tomers are able to choose from over 40 include SMA, MMA, WMA, EMA, Besides, one can also create multiple
time set price targets. Quadrant Lines, Cycle Lines, built in indicators to apply on their Bollinger bands, RSI, Volume Oscillator Market Watch windows to view the lat-
Ellipse, Standard Deviation Channel and Standard Error desired scrips and monitor those in real and Money Flow Index. IGS offers intra- est market price of the stocks they want
Channel are among the list of inbuilt line studies offered by time. The list of indicators includes most day charts for all NSE listed stocks. User to track. In addition, it offers an inte-
MetaStock Pro. of the popular studies such as moving can switch on intraday mode any time grated online trading platform for invest-
MetaStock Pro 11, which has more than 200 averages, RSI's, Stochastics, MACD, on any stock by clicking on intraday icon ment in equity, F&O and IPOs. It also
basic indicators, provides new features Bollinger Bands and Swing Index. With on the graph. The advanced version of the provides various kinds of trading reports
including six new alerts for the RMO trade its help, one can switch between line software is free for 15 days. After that one to cater to the distinct needs of internet
model. It is offering a couple of new sys- chart, bar chart, and Japanese candle- has to pay Rs 6600 per annum. trading users. For instance, a person can
tems like: Stochastic Pops, Conners RSI, sticks chart instantly. Besides, it offers access Net Portfolio Report to view a list
Darvas Box and Turtle Trader (Hybrid). various features including Tick Watch, Trading software of stocks which are available in his port-
Metastock Pro is available at Rs 75,000 for Action Watch, Market Watch, Market After choosing a good share, one folio.
lifetime. Additional fee for cash-related data is Summary, Pivot Report, Alerts, Action needs to take a call on that. Brokers pro-
Rs 45,000 per annum and for commodities-relat- Replay and DDE. Cost for cash, F&O, vide online trading platform to their cus- KEAT Pro
ed data, it is Rs 48,000. The company is offering commodities is nearly Rs 68,000 inclu- tomers. With the help of this trading plat- KEAT Pro, a trading platform
data for both the segments at the price of Rs 60,000. sive of taxes. Online support and train- form, traders are able to execute their offered by Kotak Securities, allows
Training session is free. Besides, clients of compa- ing for product use is offered by the com- orders themselves. online trading customers to trade in equi-
ny are offered support from 8.30 AM to 5 PM on pany. Renewal cost for the software is Rs ODIN Diet: ODIN Diet is such a ty, derivatives and currency derivatives.
market days (Monday to Friday). The support sys- 66,000 per year. type of trading platform with various fea- With KEAT Pro, one can monitor the
tem is offered from 9.30 AM to 1 PM on Saturday. For IGS: It is not necessary to pay for tures. ODIN Diet is application-based market in real time and check live mar-
MetaStock Pro, company claims the strike rate of 80%. technical analysis software. A number front-end trading software for clients of ket rates of scrips/contracts in NSE and
Spider Iris: The software is offered by Spider Software of companies are offering technical the brokers. ODIN Diet is a product of BSE. One can also create multiple watch
India. The network of company delivers live data of BSE and NSE charting software for free. Financial Technologies Limited. It offers lists and simultaneously place orders,
from its real-time servers directly to the internet to provide streaming real- iGuideStocks.com is such a company appealing features needed by active view order reports, view positions and
time data to subscribers. It offers over 120 trading days of intraday data with the which offers two versions of its soft- clients and can be connected to broker's view order confirmations etc. KEAT Pro
advanced charting features. It offers various facilities including Price Watch, Volume ware IGS. The simple version of the soft- servers through the internet. It provides allows creating personalised view of the
Scanner (which is called tech query) and Support and Resistance levels. It offers ware is free and one can download it on streaming quotes on a real-time basis and market so one can watch the data he/she
advanced charting with over 50 indicators that can be tailored to fit individual strate- their machines. The simple version sup- has the ability to transmit buy/sell order wants. The trader can create multiple
gies, plus line tools in addition to basic charts. Besides, it provides tick charts, tick bars, ports 10 drawing components including requests directly to the exchange. It facil- watch lists that can have up to 50 scrips
seconds bars and tick volume bars. The software automatically calculates the indica- line, vertical line, horizontal line, Gann itates higher accessibility and availabil- in each of them. These watch lists can
tor, updates the screen and alerts the trader when market moves trigger an alert for angle and Fibonacci retracement, which ity ensuring 'Anywhere Anytime' trading be set in tabs.
56 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 57
EP-46-90.qxd 8/10/2010 8:49 PM Page 58
FINANCIAL PLANNING TAXATION STOCK MARKET COMMODITIES INSURANCE Medical Insurance
Compare your Health Insurance Policy
Expert Advice
Name of Name of Premium for age Pre Existing Sub Limts
the the Policy 30 years and disease
Companies Sum Assured of Covered
No Gain in Bharati
AXA
Smart
Health Plan
Premium
Rs. 300,000 *
2,729/- After 4 con- Room rent of 1% of Sum
tinuous policy Insured per day
year
Switchover
ICICI Comprehen 3,046/- After 4 con- No Limit
Lombard sive Health tinuous policy
Insurance year
United Mediclaim 3,609/- Covered from Room rent 1% of Sum
India Policy day one Insured per day or the actu-
Insurance Platinum (Congenital al amount whichever is
diseases not less. I.C.U expenses :
able. Also the kind of confusion you covered) Room rent 2% of Sum
have seen lately is in case of Public Insured per day or actual
amount whichever is less.
Sector Companies only. The private
insurance companies are still offering Apollo Easy 3,626/- After 3 con- No Limit
cashless as earlier. Also, the issue of Munich Health tinuous policy
cashless of PSUs would be resolved Individual year
very soon. Following are a few com- Standard
panies that have quite good network Star Health Medi 3,640/- After 4 con- Room rent of 2% of Sum
in Delhi region along with some Classic tinuous policy Insured per day maximum
details:- year to Rs 4,000/-
HDFC Health 3,653/- After 4 con- No Limit
Yearly Premium (in Ergo Suraksha tinuous policy
Renewable till No. of hospitals with
Rs.) of Sum Assured
what age cahsless facility* Given the confusion over cashless ben- year
of Rs. 300,000 each
efit, should we go for another one from Future Health 3,932/- After 4 con- Room rent 1% of Sum
ICICI Lombard -
11,857/- 70 3500 some private company? Generali Suraksha tinuous policy Insured per day and I.C.U
Health Insurance
1) Sir, I was in a mood to buy a med- - Sarita Mallik, Agra Golden year expenses :Room rent 2% of
ical insurance cover. Since I stay in Co pay No Limit In case of health insurance, medical Sum Insured per day to a
Delhi, I was looking for a cashless history is very important. You have been maximum of 35%. Surgeon
Sub Limits No Limit
one, which could cover me (41), my associated with one health insurance fees up to 35% of the Sum
wife (36) and two kids (12 & 8 years). After 4 continu- company and have a track record of no Insured per claim. OTC :
PED Coverage
The confusion over cashless medical ous policy years claim with them and this will help when Up to 40% of the Sum
insurance has left me totally con- Apollo Munich - Easy you have to file a claim in case of any Insured per claim.
fused. Please tell me, whether I Health Individual 12,905/- Life Time 4200 hospitalisation in the future. The new
Standard National Mediclaim 3,988/- After 4 claim Room rent 1% of Sum
should buy a medical insurance company you buy a health insurance Insurance Policy free policy Insured Per day to a maxi-
cover or not? If yes, which one will be Co pay No Limit from wouldn't have your medical his- year mum of Rs 5000.I.C.U
better? Cashless is my only choice. tory. It is possible that you (or your cov- expenses :Room rent 2% of
Sub Limits No Limit
Which company is the best as far as ered family members) may have devel- Sum Insured per day to a
medical insurance is concerned? I After 3 continu- oped a disease after you took the poli- maximum of Rs.10,000.
want to take the facility of OPD as PED Coverage cy from the existing insurer. In that case, Surgeon fees : Maximum
ous policy years
well? Is it possible? it will be covered by your existing insur- limits per illness- 25% of
IFFCO Tokio -
-Chintan Pathaik, 14,948/- 70 2800 er if you renew the policy and may not Sum Insured. OTC :
Individual Medishield
Mayur Vihar, Delhi be covered if you shift to another insur- Maximum limits per illness-
Source: Apnapaisa Research Bureau
Medical insurance is a must for Co pay No Limit er. So we would advise you to shift your 50% of Sum Insured
every individual as medical emergency insurer only in case you are absolutely IFFCO Individual 3,990/- Not covered Room rent 1% of Sum
related to disease or/and accident can Room rent - 1% sure that neither you nor any of your Tokio Medishield Insured Per day I.C.U
happen anytime. Cashless is a bene- Sub Limits of SA, ICU - family members are suffering from any expenses :Room rent 2.5%
2.5% of SA
www.apnapaisa.com
fit, which is offered by the health insur- disease as on the date of shift of of Sum Insured per day.
ance companies, and whilst very PED Coverage Not Covered mediclaim insurance. The issue of cash- Cholaman Individual 4,377/- After 3 con- No Limit
important, it should not be the only less facility may get resolved very soon, dalam MS Health tinuous policy
parameter on which you decide to buy OPD facilities are available in a few 2) Sir, I had bought a medical insur- so do not shift your health insurance General year
a health insurance scheme. You can health insurance policies but they are ance cover from a public sector gen- just for this reason. Insurance
also file a reimbursement from a very few in number which are signifi- eral insurance company? I have
mediclaim policy for all kinds of cantly costlier than the regular taken the option of cashless facility. Harsh Roongta is CEO, Apnapaisa.com
approved hospitalisations in cases mediclaim policies and cover OPD So far, we have not availed any med- a search comparison engine for loans, All policies come with cashless facility
insurance and investments. He can be * Premium is inclusive of service tax
where cashless facility is not avail- expenses to a limited extent. ical facility with the insurance cover. ** No claim discount of 5 per cent for every claim free year to a maximum of 25 per cent
reached at moneymantra@apnapaisa.com
58 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 59
EP-46-90.qxd 8/10/2010 8:49 PM Page 60
FINANCIAL PLANNING TAXATION STOCK MARKET COMMODITIES MUTUAL FUND CONSUMER LAW BANKING INDIA POST
Teleshopping you have a complaint vis-à-vis such the day of the hearing, none appeared
teleshops and it is not redressed, you for the opposite party.
have a recourse to the consumer courts
Comfort Or Trauma
If you don't want to step out and want to shop too, teleshopping is one choice for
constituted under the Consumer
Protection Act. Let me quote a case
decided by the Apex Consumer court
that highlights the kind of problems
Liable to pay
The District Forum, after perusing
the points raised by the opposite party
in its reply and the complaint, held the
you. But this comfort may make you uncomfortable if the products delivered to one can face and also the redress avail- Asian Sky shop liable. It pointed out that
you are not up to the mark or damaged or if they are not delivered to you at all. able through the consumer courts. the consumer, on seeing the advertise-
The case dates back to 1995 when ment on television had sent a demand
Mr L.K.Pandya , in response to an draft for Rs 8,200 to the opposite party,
Pushpa Girimaji ing transit? Will the shop take respon- advertisement on television, placed an which, on receipt of it, had sent a letter Find out
Ad
sibility for it? You also need to check order for jewellery with the Asian Sky dated November 20, 1995, stating that the
va
rom cosmetics and health whether the prices quoted on the tel- Shop and sent a delivery would be made only after clear- About the return and
F exchange policies of the
n
products to slimming gadg- evision is the final price or is it exclu- demand draft for Rs ance of the draft. The letter, signed by the
ge
Customers
ta
ets and electronic appliances, sive of delivery charges and tax? 8,200 towards it. senior manager of the shop had also teleshop.
ta
ge
buy products
you can buy a variety of What about complaint redress? Does However, stated that if the consumer wanted more Whether the order can be
an
without actually
goods today through 'television the shop have a system of redress- when he than one item, it was likely to be deliv- cancelled if the product does
dv
going to the shop. Customers
shops' or 'teleshops'. The advantage ing consumer complaints? If so, how received ered on separate days as manufacturers not reach on time.
sa
buy goods
here is that you can buy a wide range does it work? You need to get all this Customers have the three were different for different products.
Di
without Will the shop take responsi-
of products without actually going information before making a final wide range of products parcels The letter had also urged the con-
personally bility for damaged/ different
to the shop. In other words, sitting choice and ordering the goods. to buy. dis- sumer not to hesitate to contact the shop
examining them. product?
in the comfort of your home, you can patched for any queries or clarifications. In view
order goods and get them home- Seek recourse Customers don't through of this, the opposite party cannot take Does the shop have a system
delivered. I must tell you that if take delivery of the post, he the plea that there was no contract of serv- of redressing consumer
The disadvantage, however, is goods personally was ice with the complainant and that it had complaints?
that you are buying goods without from the shop. shocked to not received any consideration or pay- Whether the prices quoted
personally examining them. Nor are find that the ment for the service, the District Forum on the television is the final
you personally taking delivery of the first packet con- said. price.
goods from the shop. So there is every tained very tiny ear The District Forum also observed
possibility of the product delivered to rings worth Rs 601 and a sil- that through its advertisement, the oppo-
you turning out to be different from ver coin. The second parcel contained site party had shown its ability to provide the consumer, on finding the empty box,
what was shown on the television or an empty jewel box with two coins of the jewellery on receipt of certain amount had immediately contacted the jeweller.
ordered by you. Or, there could be a rupee one and 50 paise denominations and on the basis of this, the consumer had He, however, did not bother to respond.
delay in delivery. There is also a pos- and a bill of M/S C.M.Jewellers. booked the order from his home in Since it was the appellant (the sky shop)
sibility of the product getting dam- On seeing this, Mr Pandya did not Chandrapur and this amounted to an which had acted for and on behalf of the
aged or destroyed during transit or not open the third parcel and immediate- agreement and this agreement was jeweller and offered the product through
reaching you at all. ly sent a fax to the jewelers, bringing accepted by the opposite party when it its advertisement on television, the
this to their notice. He also wrote to sent a letter to the consumer about deliv- District Forum was justified in direct-
Garner all information Asian Sky Shop and on failing to get ery of the article. However, the oppo- ing the shop to compensate the consumer,
It's for this reason that one needs any response from either of them, site party had failed to act as per the the State Commission said.
to be extra careful while shopping sought the help of the District agreement of service with the com- The apex consumer court or the
through such teleshops. First and Consumer Disputes Redressal Forum plainant and ensure the delivery of the National Consumer Disputes Redressal
foremost, you need to find out about for refund of Rs 8,200 paid by him. promised jewellery. The opposite party Commission, before which the Asian
the return and exchange policies of He also asked for Rs 26,000 towards was thus guilty of deficiency in service Sky Shop filed a revision petition, also
the teleshop. If the product turns out compensation and Rs 1,500 towards and unfair trade practice, the District expressed the same sentiments while dis-
to be different from what you ordered legal expenses. Forum said and directed it to pay Rs missing it. The Commission also
or if you are not satisfied with the In response to the notice sent by the 34,700 along with interest at the rate of observed that the shop should have
product, are they willing to take it District Forum, the Asian Sky Shop (the 18 per cent per anum , calculated from immediately acted on the consumer's
back? If so, who will pay for the opposite party) said in its written rejoin- November 10, 1995 till the date of pay- complaint about non receipt of the goods.
return delivery? When will your der that it could not be held liable for the ment. It also said in its order that the However, despite the insurance cover,
money be returned? Will you get the non-receipt of goods as it was neither amount should be paid within a month it had failed to provide any remedy, forc-
full refund including the delivery the supplier nor the manufacturer of of the date of the order. ing the customer to approach the
charges? You need to check all these the goods (or jewellery as in this case) Aggrieved by it, the opposite party Consumer Forum for justice. This not
facts. and there was no contract of service filed an appeal before the State only amounted to deficiency in service,
You also need to find out whether between the sky shop and Mr Pandya Commission, which dismissed it. While but also an unfair trade practice, the
you can cancel the order if the prod- as no payment or consideration had doing so, it agreed with the view of the Commission said. (Asian Sky shop vs
uct does not reach within the prom- been received by it. In other words, it District Forum that the sky shop cannot L.K.Pandya, R.P.No 986 of 2002, decid-
ised time. What if the product does refused to take any responsibility for the escape liability for non receipt of goods. ed on 15-7-2002)
not reach you at all or is damaged dur- goods sold through its shop. And on The State Commission pointed out that (The author is a leading consumer activist)
60 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 61
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Real Estate Consortium
separate tax entity. This entity can be the said section 67A further provides
either a name of a private limited com- that any interest paid by any member
pany or it could even be a partnership of the AOP on capital borrowed for the
firm or it could even be in the form of purpose of investment in the
a Limited Liability Partnership. Association of Persons shall be
Similarly, it is also possible to prepare deducted in computing his income
the consortium as a separate tax entity chargeable under the head profits and
by having the status of the Special gains of business or profession.
Purpose Vehicle as an AOP i.e. b)Section 86
Association of Persons or body of indi- It is also worthwhile to refer to sec-
viduals. tion 86 of the said Income-tax Act,
1961 which throws more light in
Partnership firm, respect of the shares of member of an
Bid For
LLP or AOP? Real estate consortium is Association of Persons or body of
I would like to recommend that one formed basically to participate in Individuals in the income of the asso-
of the best mode of creating and oper- a big bidding or to obtain a big ciation etc. It is provided clearly in this
ating SPV would be either through a contract. section that where the association or
partnership firm or an Association of body is chargeable to tax on its total
Persons. However, the latest recom- Real estate consortium pre- income at the maximum marginal rate
mendation from our side could be to pared by different developers is or any higher rate under any of the pro-
form a Limited Liability Partnership implemented through the visions of the Income-tax Act, 1961,
Special Purpose Vehicle (SPV).
BIG
(LLP). In case consortium is prepared then the share of member computed
in the form of a partnership firm or in shall not be included in his total
the form of Limited Liability SPV has to be a separate tax income. While in other cases the share
Partnership (LLP), the big advantage entity. of a member computed as above shall
is that once income-tax has been paid form part of his total income. Finally,
by the partnership firm or the Limited Best mode of creating and oper- the last proviso to the said section 86
Liability Partnership (LLP), the tax has ating SPV is either through a clearly states that where no income-
not to be payable by different partners partnership firm or an tax is chargeable on the total income
in respect of share of profit from the Association of Persons of the Association of Persons, then the
partnership firm. When it comes to share of member computed as per
computation of member share in the and apportioned among the members in above norms shall be chargeable to tax
income of Association of Persons or the proportions in which they are enti- as part of the total income of the
body of individuals which has been pre- tled to share in the income of the asso- assessee.
pared for the purposes of creating ciation or body;
Special Purpose Vehicle or a b) where the amount apportioned to a Mind the tax implication
Consortium, then it will have to be member under clause (a) is a profit, any Finally, it should be noted that tak-
looked in as per the provisions con- interest, salary, bonus, commission or ing advantage of the concept of con-
tained in the Income-tax Act, 1961. remuneration aforesaid paid to the sortium for real estate development or
member by the association or body in for execution of big project in real
AOP and the Income respect of the previous year shall be estate sector, infrastructure sector or
In case consortium is prepared in the form of a partnership firm or Tax Act added to that amount, and the result any other sector is the shape of things
a) Section 67A: Section 67A of the shall be treated as the member's share to grow big and to make money big.
in the form of Limited Liability Partnership (LLP), the big advantage Income-tax Act, 1961 contains a clear- in the income of the association or body; However, whenever consortium is
is that once income-tax has been paid by the partnership firm or cut provision which gives guidelines c) where the amount apportioned to a being planned, it is worthwhile to dis-
the LLP, the tax has not to be payable by different partners in and clearly states the method of com- member under clause (a) is a loss, any cuss in advance the tax implications
putation of a member's share in the interest, salary, bonus, commission or of such a consortium. In the end, we
respect of share of profit from the partnership firm. income of Association of Persons. remuneration aforesaid paid to the would like to recommend that for the
The net profit or loss of the Special member by the association or body in purpose of creating of consortium or
Subhash Lakhotia a successful bidder. Further in the said contracts awarded by the Government. Purpose Vehicle in the form of respect of the previous year shall be preparing a Special Purpose Vehicle
advertisement was also clear that for In this article we will examine some Association of Persons shall be first cal- adjusted against that amount, and the (SPV) the best from our view point,
ome time back there was an aggregate, tangible net worth for a firm of the basic important aspects connect- culated and the share of the members result shall be treated as the member's especially keeping in view the tax tan-
S advertisement by the Ministry
of Railways. The advertise-
ment provided a great big
opportunity to real estate developers for
commercial development of ten sites
or a consortium of firms taken togeth-
er will also be considered.
Real estate and
consortium
ed with real estate consortium which
is formed basically to participate in a
big bidding or to obtain a big contract
whether in real estate or any other seg-
ment of trade and industry.
of the said Association of Persons or
body of individuals in terms of the said
section 67A will be computed in the fol-
lowing manner:-
a) any interest, salary, bonus, commis-
share in the income of the associa-
tion or body;
The above-mentioned section fur-
ther states that the shares of members
in the income or loss of the said AOP
gle, would be to set up the consor-
tium in the form of either a partnership
firm, a Limited Liability Partnership
(LLP) or an Association of Persons.
which had been identified by Railways The concept of forming a consor- Generally, the real estate consor- sion or remuneration by whatever name for the purpose of tax assessment shall The author is tax & investment consultant at
in different locations in India. One of tium specially to participate in the bid- tium so prepared by different develop- called, paid to any member in respect of be apportioned under various heads of New Delhi for last over 40 years. He is also
Director of M/s R.N. Lakhotia & Associates
the eligibility criteria is with reference ding process of the projects of this type ers is implemented through the Special the previous years shall be deducted income in the same manner in which & The Strategy Group. E-mail:
to financial net worth of the bidder is really very common now-a-days in Purpose Vehicle (SPV). This Special from the total income of the associa- its income or loss has been determined slakhotia@satyam.net.in M. 9810001665
which was also to be fulfilled to become the real estate segment even in other big Purpose Vehicle has to be formed as a tion or body and the balance ascertained under each head of income. Likewise,
62 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 63
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Notice the colour of smoke from Examine car engine car is, therefore, unsafe to drive.
How to examine engine: If a car blows out blue smoke
at start-up, it indicates problems in Check the oil:
Moreover, colour of the fluid should not
be darker than the colour of iced tea
a second hand engine. If smoke is black, it indicates
the engine is consuming a lot of fuel
or there may be problem with fuel injec-
Step 1:
Locate the car at
the level spot. Turn
or apple juice.
Moreover, check if the car groans or
vibrates when you apply brakes, it tells
tion. Ideally, car shouldn't blow out off the engine and that the brake pads are worn out. The
smoke at all. However, it also depends set the hand brake. brake pedal shouldn't be too soft or too
on the kind of fuel used in the car. Put a dipstick in hard. And, it shouldn’t go too far while
Generally, diesel engine blows out engine oil. pressing.
slight black smoke at start-up. Blow out Step 2:
of white steam at start-up is also Clean the dip- Check the mileage
normal. stick with a Fill your tank to the full level. Drive
piece of cloth till the gauge comes on. Usually, a gal-
Examine tyres and insert it lon is left even when the gauge comes
Check treads of tyre: Tread is a thick back. on. Now, divide the number of miles
Car
rubber spread all across the outer cir- Step 3: you've driven by the capacity of your
cumference of tyre. There are small Now, pull the dip- tank. This will give you a rough idea
groove on the circumference that helps stick again and about mileage.
the tyre to grip the road. Check if check the oil level.
grooves are even on all parts of the tyre. Oil should touch Ask the dealer
More tread depth means perfect grip. the full level or a
So grooves should be even on all parts bit below the oil Where did you buy the car from?
of the tyre. Special gauges are available level. If the stick When did you buy the car?
in the market to scan the actual depth shows a slight-brown colour, it's all Why do you want to sell the car?
of grooves. Drive down to any nearby right. If the colour is black, it's time What is the mileage of the car?
garage and get the grooves depth to change it. If it's slightly-milky, Have you made any investments on
checked with the help of a gauge. there's a problem with engine. car i.e. insurance or accessories?
Do you provide any warranty?
Examine the interior of car the driver's side, close to the back of the Buying a second-hand car may
Besides the general appearance, engine).The container, generally, seem a cheaper deal but, sometimes,
check if driver’s seat has excessive shows minimum (MIN) and maximum people end up spending more money on
tears. Also check the condition of seat (MAX) marks. Ensure the level of fluid its maintenance. So a proper inspec-
accident while the car shown in Figure belts, the floor under the carpet, uphol- is above MIN mark and below MAX tion helps in overcoming the mainte-
2 has been in serious accident/s. stery, windows, locks and mirrors. mark. If the brake fluid is below MIN nance issues. Moreover, it is recom-
Shilpy Arora Look for body filler: A magnet is Don't forget to test wipers and wind- marks, it shows the brakes are either mended to get the car inspected by a
required to check if the car body has any shield washer. worn out or there's a leak in system. The professional mechanic.
ita bought a second-hand filler. Run the magnet along the length Check car's AC: Start the car and
R car that seemed to be in
good condition. But a few
weeks later she noticed
blue smoke while starting
the car. Later on, she discovered that
no oil is left in engine and finally got the
car towed to garage.
of the car body. If the magnet doesn't
stick to any part of the body, it means
the part under the paint is either dam-
aged or consists of a plastic pannel.
Look for paint over coating: While
opening the doors of car, see if unnec-
essary parts have been painted i.e. if
turn on the AC. Look at the AC's com-
pressor. Situated under the hood, AC’s
compressor has a pump-like structure
with a large rubber at one side and steel
pipes coming out of it with pulleys. An
outer pulley is on the front of the com-
pressor while an inner hub turns when
Go for a test drive
Before taking a test drive, drive at least two-
three cars of the same model. Say, if you
are going to buy a Mercedes, take a test drive
of the same model of Mercedes before you
actually visit the dealer. Driving on a high-
There are many second-hand car rubber swatches and plastic plugs are an electric clutch is engaged. Turn on way is the best way to check the car.
buyers like Rita who come across such coated. Over spray on these parts clear- the AC and blower of the car and check Accelerate, decelerate and check if the engine
issues. Buying a second-hand car ly show the car has been painted. if the center of the pulley is turning. If indicate any problem i.e. any noise, vibration or
always involves some risk as people are Look for gaps: Check all the gaps in it is not turning, electric clutch is not smoke. Also,
not aware of the right techniques to the pannel of the car body. Make sure engaged. It shows AC is not working Make sure the car starts easily even if it's cold.
examine the car. all gaps are of same size. If you find any properly. It shouldn't make any noise or cry over speed
part wider or narrower, look at the other breakers.
What needs to be checked? side of the car body. In case the size of Examine brakes Its brakes should be effective and stop the car
Examine car body: Look at the gen- Look at lines of the car: The lines of gap is not similar, the car has been in You must check car brakes as a as soon as brakes are applied.
eral appearance of car: It tells you how the car should be straight. The easiest accident. minor default in the brake system Ensure brake warning lights turn on as soon as
well a car owner has taken care of his way to do so is to observe reflection Notice the noise: No matter if engine makes your drive unsafe. If a car is you apply the brakes.
car. If you find any crack, dent, scratch, of an object in the car body. Look at is hot or close, if there is any kind of parked for a long time, get it checked Check the indicator lights.
corrosion mark, ask the dealer to fix the following figures. The reflection noise, vibration or shimmer, it shows from a professional mechanic. Or, you Listen how quietly the doors and windows are opened and closed.
the problems. In case, you are buying of white car in Figure 1 is straight. The the poor maintenance of the car. can examine it yourself, like this: Sit in the back and front seat, and check if there's enough leg room.
from owner, it is the responsibility of reflection of white car in Figure 2 is rip- Moreover, it shows the excessive wear Check the brake fluid: Look at the Turn on the music system and insert CDs. Play all the levels and notice
the car owner to fix or you can negoti- pled. The figures show that the car and tear of the engine. Never buy a car brake fluid container carefully. It is the difference. Check if you are able to hear the music over speed break-
ate to bring down the prices. shown in figure 1 hasn't been in any if the engine is noisy. located under the hood of the car (at ers.
64 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 65
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DR MENON'S CLINIC GOALS
REACH
HOW TO
House Initial Observations:
The propensity to save is the highest in the first decade
Rs 70 Lakh of your working life as generally one has lesser or no
liabilities / responsibilities - You are in this stage.
The current stage of your life provides you a golden
YEAR opportunity to save the maximum as expenses and
responsibilities tend to soar once we get married and
2015 have a family.
Beware - Misconceptions about investing :
At your age one tends to receive myriad advices on
how to manage one's investments and savings. After
hearing to all the suggestions and advices one does today's cost.
get bewildered and investing becomes a convoluted
Car exercise.
Let's assume the retirement age to be 55 years.
At 55, you would need a monthly income (pre tax) of
It is important to clear the labyrinth of advices and have Rs. 3.38 lacs to maintain the current standard of liv-
Rs 15 lakh a proper roadmap when it comes to investing.
Below are some misconceptions which should be
ing. We assume tax rate to at 20%
To generate this monthly payout, you need to amass
nipped in the bud to become wealthy. a retirement kitty of Rs. 8.7 crores.
YEAR Increase in bank balance is perceived as increase in
real wealth.
This kitty should grow @ 8% p.a. to provide the
monthly payout of Rs. 3.38 lacs increasing @ of 6%
2015 Life insurance policies are the best bet as it meets both
investment and insurance needs.
p.a. to counter inflation. This corpus will get com-
pletely exhausted when you turn 85 years.
Pension plans takes care of Retirement life. Now, to create this kitty you need to put aside right
Life cover Retirement
Dabble with stocks to make quick bucks.
Let me elicit a better perspective towards managing
finances.
House - 2015:
away Rs. 18,000 per month growing @ of 14% p.a.
for the next 29 years.
S
You wish to buy a home worth Rs. 70 lacs (In today's PHOLE
NOT FOR YOU
Dear Dr. Menon, girl, the combined income after marriage
Rs 8.7 Cr.
YEAR
cost) five years hence.
Home prices are spiraling year by year and if we
assume a 6% p.a increase in home prices, then by
2015 the price would be around Rs. 93 lakhs.
PLUGG
ING LOO
You need not buy life insurance right now. Going
ahead when you have family then review life insur-
I have been reading your column for the may increase and savings may remain Housing finance companies and banks tend to finance
ance requirements. Stick to term assurance plans.
last five months. To my surprise, none of
the male readers have addressed their queries
steady. Until my marriage, I will be able to
save the way I want to. You may assume
2040 up to 80% to 85% of the home value and the balance
has to be self financed.
NPS is still at a nascent stage and can be looked at
a later stage.
to you. There may be an editorial policy to that I will get a minimum salary hike of You need to put aside Rs. 25,000 per month growing @
Further, you need to opt for Health Floater plans with
pick and choose the queries of only female 15% per annum. 12% p.a. for the next 5 years to fund the initial down
a medical cover up to Rs. 5 lakhs to shield from
readers, but it has made male readers shy. I wish to buy a house in Mumbai before payment of approximately Rs. 20 lakhs and the rest
abrupt medical emergencies.
Anyway, I have tried to break the ice, let marriage (may be by 2015). Of course, it will can be availed through a home loan.
me see whether my query reaches you or not. improve my marriage prospects. I have fixed Further, a home loan of Rs. 70 - 75 lakhs at 9.5 % p.a.
I'm 26, just finished my MBA from a a budget of Rs 70 lakh for the purpose. I have for 15 years will entail an EMI of about Rs. 73,000 - Rs.
78,000. This means you need to have a monthly
reputed management institute and got a job to buy a car as well. Since office has provided
OSI S HOT
SNAPS
DIAGN
in a Mumbai-based firm through campus me a car, I'm not in a hurry to buy a vehi- income of around Rs. 2 lakhs by 2015.
recruitment. I received my first salary three cle. I will buy it at the time of marriage, prob- Marriage Funding -2015
months back. I have been able to save 60% ably a SKODA. If I receive it as a marriage This goal is five years down the line and there is noth- You have just started your career and the mantra for you
of my salary from day one. I have no lia- gift, then there must be an alternate plan to ing like funding one's own marriage. is to save as much as possible.
bilities, no loan. My parents are well off. deploy the money saved for buying a car. I Let me give you estimation - Put aside every month Rs. Invest in diversified and midcap mutual funds.
They don't need my contribution at all. need to plan for my retirement days also. Mr. Vidu, 26, is a young pro- 10,000 growing @ 12% p.a. for the next 5 years. Follow the plan, review it periodically and above all be
To be more specific, I am earning a salary What about the New Pension Scheme of fessional and is earning You should garner about Rs. 8 lacs in five years time. meticulous.
of Rs.75,000 per month. I spend almost 30 PFRDA? My firm has provided me with handsomely. He does not The same money can also be diverted towards buying
thousand per month on my personal chores group linked life insurance cover and unlim- a car.
have any liabilities and his Satish Menon is a Financial Planner & con-
and easily save Rs. 45,000 a month. In the ited medical expense. Should I buy an insur- Retirement: sultant with Transcend Consulting
last three months, I have saved Rs. 1.35 lakh. ance cover apart from these? parents are not financially Your retirement has a long way to go - That said saving (I) Pvt. Ltd.
This amount is still lying idle in my sav- I'll remain grateful to you, I mean more dependent on him. He is right away can be beneficial as you can even think of If like Vidu, you would also
ings bank account. grateful than your female fans. saving 60% of income and retiring early if you could build a sizeable corpus. like to share your financial story with
I plan to marry after 5 years (in 2015- Regards, wishes to have roadmap for Going by the current estimation you need Rs. 30,000 us and have a plan made by Satish
for your personal chores. This amount will forge once Menon, do write to us at editor.money-
16) or so. Since I plan to marry a profes- future investments. mantra@gmail.com
sionally qualified and suitably employed Vidu Ramnathan you have a family, say that amount is Rs. 50,000 in
66 MONEY MANTRA August 31, 2010 August 31, 2010 MONEY MANTRA 67
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This
is the maturi-
KNOW YOUR INSTRUMENT ty period Value
The current peri- of the certificate
Double Your
od is 8 years 7 bought by the
months investor
Certificate
number
Investment Date of
Purchase
Nominee
number
Renu Baliyan
f you are keen to double your
Features of KVP
I investment, Kisan Vikas Patra
(KVP) is an ideal investment.
KVP is one of fixed income finan-
cial products offered by the post office.
With low interest rate regime, such sav-
KVP is available in the denomi-
nations of Rs 100, Rs 500, Rs
1000, Rs 5000, Rs 10,000 and
Rs 50,000. There is no upper
limit laid down and therefore a
The date
nominated
nominee
we
the
ing instruments are in limelight again. person can purchase any num-
"These schemes are beneficial for those ber of certificates.
who don't come under the tax ambit," saving schemes, because the post-tax
says RD Sharma, a postman. You KVP can be sold at the face yield of PPF is substantially higher than
should not invest in KVP, if you want to value; the maturity value is all other debt instruments. PPF is the only
save tax. This scheme is also not good always printed on the certifi- debt instrument (other than the EPF),
for the wealthier and businessman as cate. where your interest income is complete-
well, he says. Its name may give an ly exempt from tax. And, the tax-free inter-
There is facility to reinvest the
impression that it's meant for kisan est of 8 per cent from PPF is much better
amount on maturity.
(farmers) only. But, an individual, joint than the 8.41 per cent taxable interest from
holder or minor through a guardian can KVPs can be pledged as a KVP. However, if your total income is either
purchase the Kisan Vikas Patra. security against a loan to cheque or DD. KVP can be pledged as nil or less than basic exemption limit, then
Since it has a backing of govern- banks/government institutions. security against a loan to banks/govern- How to buy KVP? KVP will score over PPF.
ment, KVP is considered a safe invest- ment institutions. Further, they are trans- KVPs can be purchased from any head post offices and authorised post offices. Even after implementation of direct tax
ment tool. They are available in the KVP is transferrable: It can be ferable from one person to another per- One can buy through cash, demand draft, or local cheques. code (DTC) which will make the PPF with-
denominations of Rs 100, Rs 500, Rs transferred from one person to son before maturity. Eligibility: Individuals are eligible to buy Kisan Vikas Patra in their own name drawals taxable, post-tax returns of PPF
1000, Rs 5,000, Rs 10,000 and Rs another person before maturity KVP is considered one of the safest or on behalf of a minor. Two individuals can jointly open a KVP account. There will be better than KVP.
50,000. There is no upward limit for (on consent in writing of an investments. It offers considerable liq- is a further classification if the certificate is issued to Joint holders:
making investment in Kisan Vikas application to the officer of the uidity to the investor. Although, it does Type A: Maturity is payable to both the holders or the survivor. KVP vs NSC
Patra. The investment will be doubled post office). not give tax benefits, investment in KVP Type B: Maturity is payable to either of the holders or the survivor. The yield from KVP is 8.41 per cent
in 8 years and 7 months. If you invest is better than parking money in banks' Who cannot buy: NRIs and Hindu Undivided Families (HUFs) cannot invest in and that of NSC is 8.16 per cent. Yet the
KVPs can be encashed at the
Rs 1 lakh, you would earn Rs 2 lakhs issuing post office. In the event savings account because the interest rates KVP. The Kisan Vikas Patra cannot be purchased by the Karta on behalf of latter is better as it is exempted from tax.
after eight years and seven months. The of the certificate being present- on bank deposits are low. However, one the Hindu Undivided Family as there is no such provision. The Non Resident NSC is one of the eligible instruments
lock-in period of the scheme is two and ed for encashment at any other must invest as per one's risk appetite and Indians are also ineligible to purchase Kisan Vikas Patra as there is no such under section 80 C i.e., your investment in
a half years. If you encash it after two post office, the paying post investment horizon and should not be car- provision laid down in the rules. "After December 2005, institutions, trusts, Hindu NSC gets exempted from tax. However,
and half years, interest amount will be office will demand for the identi- ried away by the percentage of returns Undivided Family, NRI were barred to invest in this scheme," Sharma said. returns of both the instruments are charge-
forfeited. "You cannot encash it before ty slip issued to the holder at offered. Tax benefit: There is no tax benefit at all in respect of either making invest- able to tax. But unlike KVP, NSC inter-
2 and half years. Two and half year is the time of purchase which ment in Kisan Vikas Patra or the interest income from Kisan Vikas Patra, as est is again eligible for deduction under
the lock-in period for this scheme," says should be provided. Comparison with PPF & NSC the interest income is fully taxable. For persons having an income below the section 80C. But, if you have already
Sharma. If you invest Rs 1000 in this Undoubtedly, PPF, NSC and tax-sav- taxable limit of income, this is a good investment. crossed the section 80C limit, then this tax
scheme, you will get 1171 after two and KVP is held physically in the ing bank FDs have an edge over KVPs benefit offered on NSC is of no good.
a half years, he said. Rate of interest form of a certificate that is due to the tax benefits associated with Considering the tax benefits, NSC is
for KVP is 8.4 per cent. The interest issued to the investors by the them. But, once you exhaust your section Drawbacks of investing in KVP undoubtedly better than KVP. However, if
post office.
on KVP is compounded half-yearly. 80C limit & PPF investment limit, invest- 1) Premature encashment is possible in KVP. But, it is after 2.5 years and turns tax is not a criterion, KVP returns are bet-
There is more earning in KVP than Duplicate can be issued for
ing in KVP becomes an attractive propo- out to be a costly affair as the yield would be lower. ter than NSC.
fixed deposits. lost, stolen, destroyed, mutilat- sition. 2) No tax benefit is provided as compared to PPF and NSC. Make sure you remain invested till the
One need not open any account. Just ed and defaced patras. maturity because if you make a prema-
a form is to be filled and the certifi- KVP vs PPF 3) Interest income is taxable but no TDS. ture exit, your effective yield will be con-
cates can be purchased by paying cash, PPF is better than the available small- 4) Deposits are exempt from wealth tax. siderably lower.
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Rs.1,500 laptop
A Smart
Buy Or STOCK MARKET
A Silly
Move
& Mutual Fund
through technolo-
gy. The device
would help widen the
horizon of education
across the country.
Teh laptop is designed by a
research team of IITians from
in tremendous efforts to bring down
the prices and enhance capacity that
would require a constant endeavour on
the part of research and development.
Accolades
DATA
Kharagpur, Kanpur, Chennai and
World's cheapest computer
Mumbai and the Indian Institute of Widen the horizon of education
Science, Bangalore. I across India
Features Spread awareness through tech- Inside
nology
ouch screen, video confer- Touch-screen display
T encing, 2 GB memory, Wi-
Fi connectivity, it has it all.
Yes, you got it right, just in Rs.1, 500.
2 GB RAM
Wi-Fi and USB connectivity
Linux based system
Over 25,500 educational institu-
tions to get the laptops
Criticism
Dividends or scrip quot-
ing cum dividend
Bonus or scrip quoting
In fact, the prices are expected to go Atwo-watt system to function in low
No hard disk
down to Rs.500 in future. Recently power supply areas
Distribution process would involve cum bonus
launched by the HRD Minister Kapil huge transportation and connectiv-
Sibal, Rs.1,500 laptop is a low cost How to buy? Rights or scrip quoting
ity cost
access-cum-computing device made Initially, the laptops will be dis- Need Wi-Fi infrastructure across cum rights
specifically for students. tributed by the HRD ministry. As a part institutions
This revolutionary laptop is a single unit of National Mission for Education, Make sure no harmful site is IPO in 2009-2010
system with compressed file feature, Information and Communication browsed by students
SciLab, OpenOffice, multimedia con- Technology (NMEICT), over 25,500 Need to address plagiarism issue
Indices Performance
tent viewer like pdf, jpeg, zip and education institutions will receive these
Internet browsing with flash plug-in, laptops.
Bulk Deals
JavaScript. One can also access social Sensex based compa-
networking sites like Facebook and Criticism
Myspace. Though government claims that
nies P/E
Claiming it to be the world's cheap- the device has all features a normal World Market Indices
est computer, Sibal said the price of the computer has, it doesn't have a hard
computer is likely to be around Rs. disk. But the problem can be resolved
Performance
1,500. It could further drop to Rs.950 by using external memory. Moreover, The Best & The Worst
and ultimately Rs.500. "If more com- the government is yet to work out the
panies design a similar device, prices distribution process that would
Performance A,B & S
will automatically come down," he involve huge transportation and con- group
added. nectivity cost.
The laptop will be available to stu- Also, government needs to address
Volume gainers
dents across educational institutions by the issues of plagiarism, ensure Wi-Fi India's top 50 compa-
2011. The government will provide as connectivity in all educational institu-
much as 50% subsidy for each laptop. tions and make sure that harmful sites
nies based on market
The objective is to spread literacy and are not browsed by the students. cap
create awareness among masses The government has, however, put
BSE 500 Companies
72 MONEY MANTRA August 31, 2010 MF Gallery
