Professional Documents
Culture Documents
TATA SUCCESSION: PUPPET IN PLACE? TATA WARS: PR, PLANTS AND PHILANTHROPY
TA-TA GOVERNANCE?
The Tata-Mistry spat has exposed how cronyism, cloak-and-dagger moves, personal ambitions, fears
and pettiness drive people pretending to hold the high standards of ethics and morality. Investors
should be worried
30 Cover Story
innumerable dubious transactions that had
been brushed under the carpet for years. The
Cover Story delves into all these issues. This is
the longest Cover Story we have done. Dont
miss it. Ta-ta Governance?
Suchetas Different Strokes explains how The Tata-Mistry spat has exposed how cronyism, cloak-and-
the new chairman at Tata Sons may end up dagger moves, personal ambitions, fears and pettiness drive
being a mere puppet in the hands of Ratan people pretending to be ethical and moral. Investors should be
Tata and simply be a yes-man. The future of worried, write Sucheta Dalal & Debashis Basu
the group may not be as significant a factor in
the selection as the closeness to Ratan Tata.
In her Crosshairs section, she raises questions
about the expensive public relations and
advertising budgets to maintain a spotless
12 Your Money
Palash Corporation Told To Pay Housing Society
Rs3 Lakh Compensation
image of Mr Tata. She also gives us an insight Peerless Sells Its Mutual Fund Business
into the dubious philanthropy and smear ICICI Bank Home Loan Interest Rates Lowered by 15bps
Builder Arrested for Failing To Surrender Excess Land to
campaigns that have been undertaken under
the Government
Ratan Tatas shrewd planning. Service-Tax Introduced on Music and E-Books Sold on
The Tata-Mistry spat was almost Foreign Portals
overshadowed by the governments
demonetisation of high currency notes. The
mere volumes and numbers involved make it
a gargantuan task. While the raging debates,
serpentine queues at banks and vote bank
politics take centre stage, the government
14 MONEYLIFE
QUIZ
is left to achieve the goal of weeding out
18
counterfeit notes and black money from the
economy. As good as the demonetisation
looks for the economy, what remains to be Tata Wars: PR, Plants and Philanthropy
seen is how deftly the government handles its
implementation and smooth transition.
As always, please do write to us with
comments on the published articles and about
what you would like to read.
20 Different Strokes
Tata Sons Head: Will A Yes-Man Be the Fate of the Group?
Debashis Basu Disclaimer: Moneylife has a policy of not allowing its editorial staff to
buy and sell stocks that are written about in the magazine. All personal
transactions in individual stocks are subjected to internal disclosure rules.
MONEYLIFE | 25 Nov-8 Dec 2016 | 4
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https://savers.moneylife.in/icvideos/
Speaker Event Amount
Prof Sanjay Bakshi Investing Traps & How To Avoid Them Rs.800
Dr Vijay Malik How To Assess the Management Quality before Buying Stocks Rs.700
Vijay Kedia My Investment Journey so for & what I learnt from my Failures Rs.700
22 Choosing Better
Performers 25 Bank FD Rates Down
after Demonetisation 58 GST: Many States, One
Market?
FUND FACTS
60 Ethics in
the Legal
Ca American
Can
Voters
Vo
Impact Indian
Im
28 Insurance
Trends Profession
Earnings?
Ea Life insurance
Tata AIA Launches Three New
Products ML FOUNDATION EVENTS
KPR Mills:
Strong &
Steady TAX HELPLINE
Growth
Kajaria
Ceramics:
Double 54 LookFor: Get
Spotted in a
BEYOND MONEY
Whammy
Asahi India
Sea of Faces 66 Investing in Educational
Opportunities for Gifted
Glass: Instant-Quantified Self: Track Your Poor Children
Activity
Transparently
CALM: Take a Break for a Soothing
Better Experience
InShorts: All the News in Just 60
Words
KEC International:
Infrastructure
Business Doing
Better
HEALTH
Market Manipulation:
Medicamen Biotech 56 Drug
Money
Market Trend: Demonetisation:
Pulse Beat: Medical
developments from
DEPARTMENTS
An Unknown, Unknown around the world Readers Response ........... 8
Money Facts ....................64
Debashis Basu
Editor & Publisher
editor@moneylife.in
Sucheta Dalal
Managing Editor
sucheta@moneylife.in
Editorial Consultant
Dr Nita Mukherjee
nitamuk@gmail.com
New Delhi
to? It is to the people in the third world countries.
These people provide the market but no have
WIN
a prize
DDA Flats, J-3/66, Kalkaji,
New Delhi - 110 019 money to buy. Mr Trump wants to trade only with
countries which would make America great. This is
a clear case of the UGLY AMERICAN.
Bengaluru
1st Floor, 13/1, 7th Main Road, Sunil Rebello, by email
1 Cross, Saibabanagar, Srirampuram,
st
Showing a Mirror
the
Best
letter
T his is with regard to
SEBIs Investor Advisor
to buy BSE-listed
DHYANI (some
Regulations: Right Step but Not small company)
Mutual Fund investments
Enough by Sucheta Dalal. This was sent by someone are subject to market risks,
read all scheme related
is a wonderful article showing a under the name of documents carefully.
mirror to SEBIof their myopic a reputed research
approach to regulate only
independent financial advisors
company and nave
investors, who bought Congratulations
(IFAs) of mutual funds. it, are all trapped. It Jaswant Aditya Singh
SEBI has not been able to regulate the high and has been more than six
mighty as well as the so-called small tips peddlers months and no trading
YOU WIN A
PERSONALISED
(around 6,000 small 5-10-seater call centres based has taken place since CLOCK
in Gujarat and Indore) who have managed to get then. Complaints are
the data of investors opening demat accounts. They pending with SEBI
present themselves as if the contact number has been but lead to no results.
given to them by SEBI. Everyday, nave investors are Jaswant Aditya Singh,
getting cheated by fraudsters. For example, an SMS online comment
translated in spirit. Caveat emptor is the only dictum hierarchy runs the healthcare system. The pharmacists,
that seems to work in our country while the regulators who are supposed to be drug experts, have never
are caught napping at the wheel. played a role in India. The Indian Medical Council
Subba Rao, online comment is not likely to allow this to happen. There is little
task-sharing (a new buzzword) between the various
THINGS ARE CHANGING healthcare professionals. I have not read the book, so I
This is with regard to Public Sector Banks: No Sign of have no idea if this possibility has been discussed.
a Turnaround Yet by Sucheta Dalal. India had a very robust public health system before
The malaise of bad loans is due to politicians and the revised medical curriculum incorporated public
crony industrialists who have exploited public sector health into the MBBS syllabus. Public
banks for private gains. People who have health is much more than the social
never worked as bankers want to appoint and preventive medicine that is taught
them and tell bankers how to go about in classrooms. It is more inclusive and
their business. IOB (Indian Overseas multidisciplinary.
Bank) is without a CMD (chairman and Indian society looks up to the
managing director). The BBB (Banking doctor with a great deal of awe and
Bureau Board), which is being praised like respect. It is a hangover of the feudal
the messiah that it is, suggested that it had arrogance that rules India even
already selected the candidate. The Bank is today. Indians give great importance
with just one ED (executive director) who to unchallenged authority and are
was transferred from another bank! The willing to donate more than a
appointment of a CA (chartered accountant) crore of rupees to win a backdoor
with links to the ruling party on the board of entry into a medical college. I dont
a public sector bank with full backing from think it makes economic sense. Nor
LIC (Life Insurance Corporation of Indiathe is it driven by passion.
insurer voted against him last year) certainly shows Unnikrishnan Mazhuvancherry, online comment
that things are changing. Is there such a dearth of
talent at SBI (State Bank of India) that the government A SMALL REQUEST
was forced to extend the term of its CMD? This is with regard to It Is Your Money, Your Worry
Kunal Singh, online comment by R Balakrishnan. I tried hard to explain to my
friends about the inadequacy of bank fixed deposits
POOR MEDICAL COLLEGE ADMISSIONS? to beat inflation; but nobody gives a damn about
This is with regard to The Sick Healthcare System it. Luckily, my senior colleagues introduced me to
by Debashis Basu. On the one hand, the authors Moneylife.Trust me, please, the subscription charges
lament that the doctors education comes from the are worth every penny.
pharma companies. On the other, there is a general I never miss R Balakrishnans articles. In fact, I go
tendency among Indian doctors (as a monolithic through the archives to read his articles. One small
political community, not as individuals) to never allow request from me is to publish an article about the ways
any meaningful role for other healthcare professionals, to identify turnaround companies; it will be really
or share the professional space with them, except as helpful.
'subordinates' who take orders. A prestige-based Karthik Bharathi, online comment
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Palash Corporation Told To Pay Housing convey title and failing to execute
necessary documents is a breach of
Peerless Sells Its Mutual Fund Business ICICI Bank Home Loan Interest
Rates Lowered by 15bps
K olkata-based Peerless has sold its mutual fund business to the non-bank finance
company Essel Finance Management, for an undisclosed sum, according to
The Telegraph. The acquisition marks I CICI Banks home loan interest rates
have been lowered by 15bps. Women
Mumbai-based Essel Finances entry borrowers will now be able to avail
into mutual funds. Peerless Mutual Fund loans at 9.15% while other borrowers
oers one liquid scheme, four fixed- will have to pay interest rate of 9.20%.
income schemes, one hybrid scheme and The revised rates are applicable for
three equity schemes. home loans up to Rs75 lakh. ICICI Bank
Under the deal, Peerless General has launched a home loan overdraft
Finance and Investment Company Ltd facility for salaried customers under
will sell its entire stake in Peerless Fund which customers can avail loans from
Management Company Ltd (PMFCL) and Peerless Trust Management Company Ltd Rs5 lakh up to Rs1 crore for personal
(PTMCL) to Essel Finance Management. PTMCL is the trustee, while PFMCL is the needs (education, medical treatment)
investment manager of Peerless Mutual Fund. against property.
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S
haymsunder Agarwal was department of the collectorate and the
arrested while his brother
Murlidhar Agrawal
and architect Anil
municipal corporation for collusion. The
builder was required
to surrender 5% of
D ownloading music or an e-book from an
overseas site, or buying some storage on
a cloud from an overseas service-provider,
Motiramani were booked the land (2,023sqm will entail a service-tax component of 15%,
by Thane city police on or half an acre) to which will be added to the bill, beginning
the complaint of a real the government for 1 December 2016, according to a report in
estate agent for failing building houses for the the Economic Times. Domestic suppliers
to surrender excess economically weaker of movies, which can be downloaded by
land to the government under the sections. The ULC Act was scrapped customers in India, already incur this service-
ULC Act, according to a report in ET some years ago, but some cases where tax. There will be a level-playing field between
Realty. Police have also booked some builders were to surrender land are still domestic and overseas suppliers, once the
ocials of the ULC (Urban Land Ceiling) continuing in the courts. new rule comes into effect.
Moneylife
MONEYLIFE
Quiz no
246
QUIZ Answer
Correctly! Win
Another quiz to tease your brain. The answers are in a personalised
sed
this very issue. The winner will be chosen by a lucky clock with an Francis F Fernandes
draw from correct entries and answers published in the Mutual Fund investmentnt
investments are quote!
issue dated 5 January 2017. Send in your answers to subject to market risks,
read all scheme related
quiz@moneylife.in with the Quiz no., name, address & documents carefully.
telephone number before 14 December 2016.
1. Who is responsible for saying, In the business world, the 5. Which poet is responsible for the lines little do we see in
rear view mirror is always clearer than the windshield? nature that is ours we have sold our soul to the devil?
a. Tooey Courtemanche b. Warren Buffett a. Percy Bysshe Shelley b. Henry Wadsworth Longfellow
c. Bill Gates d. Donald Trump c. William Wordsworth d. Hans Peter Durr
2. For evaluating a mutual funds performance, how many 6. Of which company was Raymond Bickson MD and CEO
years of track record should be looked at, ideally? earlier?
a. 3 years b. 5 years a. Indian Hotels Company Ltd b. Tata Steel Limited
c. 10 years d. 15 years c. Tata Motors Limited d. TCS Limited
3. How many mutual fund schemes in the Moneylife sample 7. For FY15-16, how much was the return on capital employed
in the large-cap category have consistently outperformed for Jayant Agro Organics?
the category average in each xx- year period? a. 11% b. 12%
a. Seven b. Eight c. 21% d. 23%
c. Nine d. Ten
8. Which Article of the Constitution of India (read along with
4. Which of the following mobile apps gives India-centric Schedule VII) provides for the division of powers between
news? the Centre and the states?
a. InShorts b. Calm a. Article 250 b. Article 246
c. Instant - Quantified Self d. LookFor c. Article 230 d. Article 225
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Was this the reason for may have stumbled upon a hot button
issue with Rata Tata: the relationship
Cyrus Mistrys ouster? with C Sivasankaran, promoter of
Ever since Cyrus Mistry was ousted Sterling Infotech, with whom Mr Tata
from the chairmanship of Tata Sons, in a seems to have had a very cosy financial
nasty coup engineered by the 11 directors relationship for more than a decade.
of Tata Sons (two abstained from voting), Documents reviewed by Moneylife
corporate watchers are wondering what show that Mr Mistry had raised the issue
could Mr Mistry have done to completely of Tata Sons dealings with
lose the faith of the board? Tata Sons has Mr Sivasankaran, which seem to have
so far not been able to come up with any explanation. Mr Mistry is resulted in large financial benefits to Mr Sivasankaran (often
tight-lipped. referred to as Siva). Mr Mistry had raised the issue of initiating
However, sources close to the group speculate that Mr Mistry legal action against Mr Sivasankaran
For the latest news, exclusives and reports on our activities TO GET THIS AND MUCH MORE INSTANTLY,
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W
hen it comes to fighting for internal control, one learns that Rediffusion-Edelman is being paid a
Ratan Tata finds no use for the much-touted whopping Rs60 crore per annum for PR support to
Tata culture. Values, equity and fair-play Tata Sons as well as the Tata trusts. What exactly does
quickly go for a toss and in come whisper campaigns, this kind of money buy? Quite simple. It ensured that
innuendo and falsehoods, on par with the worst in the the 2G-telecom scandal and the machinations of the
country, lubricated through expensive public relations group, led by Ratan Tata, were soon forgotten. How
(PR) and large advertising budgets. I watched it closely else does one explain the shock and many allusions
in the 1990s while reporting the humiliating removal to damage to the Tata brand that greeted the crude
of Russi Mody, Ajit Kerkar and Darbari Seth and then, sacking of Cyrus Mistry? One must remember that this
again, over the Tata Finance episode when YM Kale, a expensive PR machine is at work again in the Mistry-
highly regarded senior partner at the accounting firm of Tata war and investors need to analyse news reports
AF Ferguson, was ignobly sacked by his firm (in order carefully, to get to the truth.
to retain the Tata business) because his
904-page special audit did not give Tatas the clean chit Tata Sons Guarantees
they expected. A pink paper recently reported that Tata Sons may
The Niira Radia tapes, published by Outlook and no longer guarantee loans, refinancing deals or
Open magazines, among funding requirements of
others (and still available on group companies where
the net), provided the world a Cyrus Mistry refuses to
ringside view into how step down as chairman.
Ms Radia skilfully Unnamed executives were
manipulated the media, quoted as saying, Units
politicians and bureaucrats that dont adhere to the
through a series of trade- values and policies of Tata
offs, loans and land deals Sons cannot be supported
for her corporate clients with the comfort of Tata
(primarily the Tata group assurance, top executives.
and Reliance). Cyrus Mistrys It further says that this
latest riposte to Tata Sons message about guarantees is
(specifically, the belated full- Ties that bind: Ratan Tata inaugurates Nayati Healthcare & likely to be conveyed at the
page advertisement attempting Research in Mathura in February 2016. Nayati's chairperson EGMs (extraordinary general
to explain the disgraceful Niira Radia (right). meetings) convened to oust
boardroom coup to sack Mr Mistry) tells us that Ms Mistry. It further quotes unnamed bankers saying, If
Radias work through Vaishnavi Communications cost Tata Sons decides not to renew guarantees, borrowing
a cool Rs40 crore per annum. costs could jump significantly for group companies and
Even before one digests this huge PR budget, make their loans more costly.
MONEYLIFE | 25
27 Nov-8
November
Dec 2014
2016 || 14
18
W
ill Ratan Tatas image survive the shock and about being party to a grossly unfair decision, not even
outrage caused by the brutal and, one would say, when three of the big names had been on the board for
dubious, sacking of Cyrus Mistry as chairman just a couple of months. In some cases, financial incentives
of Tata Sons? The jury is still out on that. I suspect it is and endowments flowing from the Tata charities appear
going to be a long-drawn war with many small battles to have had a powerful influence.
on the way. The question is: What will be Ratan Tatas The dominant view is that Cyrus Mistry was targeted
ultimate legacy and in what shape will he leave Indias for trying to clean up Ratan Tatas legacy of massive debts
most famous corporate group? (steel), messy projects (telecom) and emotional investments
As I write this column, the media narrative is that (the Nano project that had to leave Singur in West Bengal
Cyrus Mistrys sacking was vicious and unfair; but after a public uprising and many deaths and is now an
Ratan Tata will, eventually, get his way because he alone acknowledged financial and marketing disaster). However,
controls the ownership, either directly or indirectly. Right the numbers are stacked against him because of the sheer
now, independent directors of four of the biggest six muscle of Tata Sons shareholding and cross-holdings.
Tata companies (Tata That may or may not be
Motors, Tata Steel, Tata a miscalculation about
Chemicals and Indian Mistrys game plan; but
Hotels Corporation only time will tell. Let us
Limited) have all look at a few facts.
endorsed Cyrus Mistrys First, Cyrus Mistry
leadership; he has been chose to keep a studiously
removed as chairman of low profile (contrary to
TCS Ltd and, in the fifth, the allegations contained
Tata Global Beverages, in Tata Sons nine-page
Mr Mistry alleges that letter about using PR to
he has been removed build his own image)
by similar dubious during his three-year
stratagems as were tenure. He has not given
deployed to oust him any media interviews;
from Tata Sons. so we know very little
That Ratan Tata has about his tenacity, ability
not hesitated to seek the Being a Tata director or a trustee on its many and willingness to fight
removal of Nusli Wadia mega charities has such a big social cache that the long war. But he has
(a childhood friend only the most upright person would allow done rather well so far.
and his biggest ally in Secondly, our Cover
considerations such as fairness and good
consolidating the group Story shows that sensible
governance to jeopardise those posts
in the 1990s) for backing institutional investors
Cyrus Mistry in Tata (retail investors wont
Chemicals appears to have jolted several independent matter because they seldom make the effort to vote) need to
directors of other group companies into being more aligned make a dispassionate assessment about each Tata company;
with Tata Sons thinking. that will happen if the government truly maintains a
Remember, being a Tata director or a trustee on its hands-off policy and foreign investors do what is best
many mega charities has such a big social cache that only for their funds.
a rare person would allow considerations such as fairness A third issue that ought to be the biggest consideration
and good governance to jeopardise that position. The for all investors and the future of the Tata group. Cyrus
reputed directors of Tata Sons showed no compunction Mistry, and his family with an 18.4% holding, is probably
as much, or more, concerned about this and Ratan Tatas toe his line; but Ratan will only consider him as the last
next steps, as are institutional investors. Ratan Tata does possible option. Noel Tata holds a 0.5% stake in Tata
not have age on his side and nobody believes he is going Sons and his mother, Simone Tata, holds 0.5%.
to find an effective replacement for Cyrus Mistry in just Then there is Mehli Mistry (a cousin of Cyrus Mistry;
four months. In fact, he may remain fully occupied in but the two families do not get along well) who could
trying to oust Cyrus Mistry and Nusli Wadia from the be a dark horse. He is very close to Ratan Tata and
group in that timeframe. is a frequent companion on his many travels. Mehli
Will the Rata Tata-headed selection committee pick Mistry, and his brother Pheroze Mistry, run a firm called
any of the names being speculated about by the media M Pallonji & Co Pvt Ltd which used to have large shipping
(Indra Nooyi and N Chandrashekaran, among others), and dredging contracts from Tata Power. He maintains
or find an expatriate of high standing (as they have in a very low profile, but is so close to Ratan Tata that it is
Tata Motors) to head the group? I find it hard to believe his family which purchased the flat at Bakhtavar (Colaba,
that any professional manager will accept this otherwise Mumbai) (owned by Forbes, a group company) in which
coveted job, without demanding thick lines to be drawn Ratan Tata lived for decades, in a very curious deal.
between the Tata trusts A third name doing
and Tata Sons and a clear the rounds is that of R
articulation of the extent Venkataramanan (Venkat),
of Mr Tatas personal writ a former executive assistant
over group decisions. to Ratan Tata. So deep
After all, Mr Mistry is Mr Tatas confidence
seems to have been sacked in Venkat that he is the
precisely for pushing those managing trustee of all
boundaries and attempting the powerful Tata trusts,
to cut the groups losses in which, with their combined
Tata Motors and Tata Steel shareholding of 67%,
and set right the unsavoury have full control over
dealings at AirAsia India Tata Sons. According to
with Ratan Tatas close sources, most of the Tata
buddy Sivasankaran in trustees that matter (retired
the loss-making Tata Tata executives who have
Teleservices (TTSL) (where There is a good chance that Mr Tata may put sinecures at the trusts
the group has to pay over in place a puppet, who follows his orders and do the job of vetting
$1billion to DoCoMo). doesnt matter if it is disastrous for the group. investment decisions of
Today, Mr Tata, with Tata Sons) are already used
Elite Parsi circles are already abuzz with
dual control over Tata to reporting, or working
Sons and the powerful Tata
speculation about who it may be in close coordination with
trusts, is single-handedly in Venkat. Further evidence of
charge of the $100-billion business empire. We dont know Venkats standing with Ratan Tata is the fact that he holds
if an eventually legal battle will lead to a court-ordered the critical 1.5% balancing stake in AirAsia India, while
change in Tata Sons equation with the powerful Tata trusts. AirAsia Investments Ltd and Tata Sons hold 49% each.
But, until then, Ratan Tata is back at the steering None of these names is being discussed because they
wheel of this not-so-Nano group. There is a good chance are the best or most competent persons to head Tata
that Mr Tata may put in place a puppet, who follows his Sons. What recommends them to the post is that they are
ordersdoesnt matter if it is disastrous for the group. unlikely to challenge Mr Tatas authority or decisions as
Elite Parsi circles are already abuzz with speculation about Cyrus Mistry did. Eventually, it will be up to shareholders
persons who may meet Mr Tatas approval. of the Tata group companies to decide if any of them is
There is one school of thought that Mr Tata may have a good custodian of their investment and they may vote
to bring in another Tata, his half-brother, Noel Tata. Noel with their feet.
is married to Cyrus Mistrys sister, Aloo; but this is a high
stakes game. His appointment could also blunt the counter- Sucheta Dalal is the managing editor of Moneylife. She was
attack by team Cyrus. Sources, who know the family, say awarded the Padma Shri in 2006 for her outstanding contribution
that Noel is used to being bullied by Ratan and could to journalism. She can be reached at sucheta@moneylife.in
T
he noise around the stock markets is a constant. changes in economic policies. Public debate generally
If we look at it logically, earnings ought to be the spurs politicians on to similar paths. Yes, posturing does
only factor that impacts stock prices. However, if cost us sometimes. One thing that all experts maintain
everyone realises this, so many media channels, talking is that the inflow of foreign investments is going to be
heads and experts would be out of their jobs. Thus, every impacted. Well, irrespective of who comes to power, it is
sneeze by a promoter, every price move in a commodity Indias economic outlook and politics that will decide the
or any event taking place anywhere in the world becomes quantum of inflows. Capital is like free-flowing water. It
a reason to react. finds its own level.
Thus, elections (state elections, national elections and, Some point out to our pharmaceuticals companies as
this year, even the US presidential election) become a big being the likely victim, or beneficiary, of retaliatory action
thing. By the time you read this, either Trump or Hillary from the US. I do not think it is a political issue. And, if
would have been elected. If I go back to history, I have things were in order, why should Indian companies be
hardly seen any real impact on Indian corporate earnings worried? Penalties, or embargoes, are imposed only after
by the choice of American voters. Yes, one of them wants they are caught with some wrongdoing. Thus, it is not a
to change the healthcare system. And how will that impact question of political intolerance or vendetta.
our Indian companies earnings? I am not knowledgeable The bigger issue to me is that, as the social inequality
enough to figure it out; but, looks to me like debating deepens and growth slows down, more and more countries
points rather than actionable points. are becoming protectionist. Nationalism has become a
Every government runs on patronage from the industry. matter of survival for the politicians. Higher protectionism
Politicians need money to fight battles. Business provides means a shrinking global trade and slower growth of
that. Thus, irrespective of who becomes the ruler, things economies. As I see it, the US cannot clamp down too
do not change much. For instance,
instan it is now fashionable much on others. They have so much at stake in global trade
to say that the present government
g is close to an and investments, including companies that are domiciled
Ambani or an Adani. Well, W these businessmen outside the US borders, to escape their tax net, that they
thrived even when the present government was have no option but to keep trade open. Yes, they will
nowhere near New De Delhi. become hostile in terms of regulatory enforcements, etc.
What it has m meant is that, as capitalism Thus, I do not see any impairment in the earning power
deepens its hold,
ho the income and wealth of Indian companies over the long term. Whoever occupies
disparities increase. This leads to the White House will have to focus on bigger issues about
another set of problems which the their own economy, healthcare and domestic issues rather
politicians are forced to address than plan vendetta on a handful of pharmaceuticals
social justice
justice. Globally, I am definitely companies.
seeing the emergence
eme of a society where However, markets will react to the noise and pockets
a Robin Hood kind of attitude is being of opportunities will be created. India has less to fear from
justified by saying
say that the haves owe it global trade, thanks to its reluctance to open up. It is like a
to the have-nots.
ha This leaves the perverse kind of a blessing in disguise. Probably, oil prices
politician in a position where he
politic have a larger impact on our economy than anything else.
has to please the vote bank Whether pharmaceuticals or IT (information technology),
as w well as the note bank. the business models are still valid.
In India, we see subsidies At this juncture, valuations in the market are stretched.
and freebies as a right. In
an So, this is a good excuse for some pullback. In this pullback,
the more advanced nations, it is possible that corrections could be excessive on the
it is social security and downside also. Be on the look-out for opportunities.
healthcare.
h
I do not see major The author can be reached at balakrishnanr@gmail.com
T
he governments move to with unaccounted cash, possibly than three years, the rate is 8.25%.
demonetise Rs1,000 and with back-dated FD receipts. It Recently launched Bandhan Bank
Rs500 currency notes, to will be difficult to do the same also offers an attractive rate of
curb black money from the system, with government or private banks. 8.25% for two-year FDs. With the
will also lead to lowering of bank Cooperative banks operate locally possibility of further reduction in
fixed deposit (FD) rates. Banks with a handful of branches for rates by the Reserve Bank of India
have been sending SMSes urging local banking needs. They are also in future, bank FD customers will
customers to visit their braches to backed by politicians. continue to face a decline in FD
deposit cash. The cash deposited HDFC Bank has reduced the rates.
by customers will lead to less cash interest rate on one-year fixed For two- and three-year bank
in customers hand and improved deposits by 25 basis points (bps), FDs, ICICI Bank and Axis Bank
offer 7.25% while HDFC Bank
has reduced it to 7%. Among
government banks, Bank of
Baroda is offering 7.30% while
Punjab National Bank (PNB) and
SBI are offering 7.05% and 7%,
respectively, for two-year FDs. Bank
of Barodas three-year FD rate is
7.25% while PNBs and SBIs FD
rate for the same term is 7.05% and
CASA (current and savings account) to 7%, which is slightly lower than 6.5%, respectively. Even though
money for the bank. It can lead to the 7.05% offered by one-year interest is taxable as per the tax slab
lowering of consumption demand FD of State Bank of India (SBI). A of the investor, bank FDs remain
and, possibly, drop in bank FD good option for a better rate is RBL a popular investment option of
rates. Bank (formerly Ratnakar Bank) Indians. With falling interest rates
Moreover, there have been which offers interest rate of 8% on in the last couple of years, senior
reports of sharp increase in deposits deposits of up to Rs1 crore for one citizens and others customers, who
with cooperative banks and credit year to less than two years. For a depend on FD interest, will continue
societies. It was for opening FDs longer duration, of two years to less to face declining interest income.
G-Sec Yields Down to demonetise Rs1,000 and Rs500 on G-Sec yields will become clear in
currency notes on inflation and also the coming days.
by 7bps in the last fortnight to end at Hindalco 9.55% 25 Apr-22 25 Apr-17 8.28 INE038A07258 CRISIL AA+
6.72% on 12th November.
Aditya Birla Fin 9.62% 26 Oct-17 26 Oct-17 7.80 INE860H07623 CARE AA+
The impact of governments move
LIC Hsg Fin 8.50% 05 Jan-21 05 Jan-17 7.77 INE115A07IO9 CRISIL AAA
NSE data as of last trade date of 11 November 2016
G-Sec Maturity Yield to Tata Capital Fin Services
Date Maturity 02 Aug-18 02 Aug-17 8 INE306N07II9 CRISIL AA+
8.62%
02 June-2028 7.07 Reliance Ports & Terminals 28 Oct-26 28 Oct-17 7.94 INE941D07158 CRISIL AAA
19 December-2034 7.05 Ltd 7.95%
Tata Power 9.32% 17 Nov-17 17 Nov-17 7.56 INE245A08059 CARE AA
09 September-2035 7.03
G-Sec yields on 15 November 2016 BSE data as of last trade date of 11 November 2016
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penetration in smaller cities. Health regulations. The regulator said US and other countries, in India,
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O
n 24th October, 2.30pm, the directors trip abroad. These eminent people had got together to
of Tata Sons met at the Bombay House, sack their chairman, Cyrus Mistry, for non-performance.
the headquarters of the Tata group. With that one action, the Tata image, already sullied by
At the meeting were: Ratan N Tata, the Tata Finance, Niira Radia and 2G telecom episodes in
Vijay Singh, Nitin Nohria, Ronen Sen, the past 15 years, accompanied by rampant destruction
Venu Srinivasan, Ajay Piramal, Amit Chandra, Farida of shareholder value in various Tata companies, sank to
Khambata and Ishaat Hussain. Mr Nohria and Ms a new low. Here is why.
Khambata had flown in especially for the meeting which No papers had been circulated about Mr Mistrys
was going to be attended by Ratan Tata personally; Mr non-performance.
Hussain, an old Tata hand, had just returned from a No discussions had been held at the Tata Sons board
earlier about Mr Mistrys non-performance. committee that deals with the appointment and removal
There was no item on the agenda for removing the of the chairman. The change also saw the definition of
chairman. quorum of the selection committee tweaked to benefit
Ratan Tata and Nitin Nohria walked into Mr Tata trusts.
Mistrys room exactly one minute before the 2.30pm For three weeks now, Indian corporate sector
board meeting and said, We have come to tell you watchers have been following the Ratan Tata and Cyrus
that we are moving a resolution to have you replaced Mistry camps engage in an increasingly bitter battle of
as chairman at this meeting. He was asked to resign words that has exposed how the mightiest of Indian
gracefully, but Mr Mistry refused. corporates actually works: cronyism, cloak-and-dagger
For three of the directors, Ajay Piramal, Venu moves, personal ambition, fears and sheer pettiness.
Srinivasan and Amit Chandra (brother-in-law of Nitin Central to the issue is how the Tata group functions.
Nohria), this was only their second meeting, having Ousted chairman Cyrus Mistry has released two letters
joined the board just a couple of months earlier. How that raise enough doubts about the much-vaunted Tata
much did they know about the operations of the culture of fair play. His letters also raise questions on the
group, which had over Rs672,000 cores in sales and independence of the independent directors of Tata Sons
seven large operating companies, to agree to such a and their conduct on all the boards of Tata companies.
drastic change at the top so quickly? At the heart of it is the ambiguous governance structure
Four months before he was ousted, the remuneration that the Tata group has created over the years, of which
committee of the Tata Sons board had not only lauded little was known outside.
Cyrus Mistrys performance but also recommended a There are three levels of power. At the apex are
substantial salary increase which he did not accept. various Tata trusts which control Tata Sons with a
The same committee had expressed appreciation 66% stake. Then comes Tata Sons which has stakes in
of Mr Mistrys multifaceted initiatives aimed at various operating companies but has plenty of outside
preserving and promoting cohesive functioning of the directors. Finally, there are the operating companies.
group in accordance with its distinctive values. To add to the confusion, there are old hands like
Of the board members, only Ratan Tata had shares K Krishna Kumar, Ishaat Hussain, Noshir Soonawala
in Tata Sons (0.8%). They kicked out someone whose and others who wear multiple hats and switch roles as
family, the Shapoorji Pallonji group (SP group), directors, trustees and consultants as required. Finally,
controls an 18.4% stake. looming over all of this is Ratan Tata who pulls all the
Only two directorsIshaat Hussain and Farida strings. According to a corporate governance framework
Khambattaabstained; even they did not have the drawn up by Mr Mistrys team, reviewed by Moneylife,
courage to object. there has to be clarity on demarcation of roles, speed/
Almost two decades after he got rid of the Tata responsiveness of decision making, clarity on delegation
stalwarts like Russi Modi (Tata ( Steel),
), of responsibilities
p
Darbari Sheth (Tata a Chemicals and Tata
Tea) and Ajit Kerkar ar (Indian Hotels) in Ratan Tata: The real issue ffor shareholders of
a humiliating manner, er, Ratan Tatas steel the various Tata companies
companie is the continuing
knuckles have comee out again. He had power without clear-cut accountability
ac of 78-
inducted the three new independent year old Ratan Tata. In 2012,
2012 when the selection
directors two monthss prior for precisely committee picked Mr Mistry to be the Tata Sons
this day. And they obliged. The move advised Cyrus Mistry to
chairman, he famously advis
was planned well in n advance. In 2012, Be your own man. Mr Mistry, M despite being
just after Mr Mistry ry was appointed the an insider for nearly a decade
decad (he has been on
chairman, Ratan Tata ata got Tata the Tata Sons board sinsince 2006), failed to
Sons to change Article
rticle read that Ratan Tata never
118 of the Articles of really wanted to give up
reall
Association which power.
pow He also failed
gave the directors to understand that
nominated by he was not meant to
Tata trusts tinker
tin with the legacy,
greater powers however
ho wobbly, that
in the selection Ratan
Ra Tata has left
Shapoorji Pallonj holds 18.40% Tata Sons Tata companies hold 8.87%
Others hold 6.73%
Tata Global Tata Steel TCS Tata Motors Indian Hotels Tata Power Teleservices
him. had ignored during JRD Tatas time, has turned into a
Mr Tata claims never to have meddled in Tata Sons wily player. His main strength is his public persona. He
but Mr Mistry narrates some shocking incidents of has crafted his reputation so phenomenally well, says
remote controlling by Mr Tata. He has alleged that Tata an insider. He is paranoid about it. He gets detailed
Sons directors, Nitin Nohria and Vijay Singh, once left information everyday about what has appeared in the
a board meeting in progress, keeping the board waiting media about him. The group used to spend Rs40 crore
for almost an hour, to obtain instructions from Ratan a year on Niira Radias firm Vaishnavi Communications
Tata on a decision. Clearly, Mr for lobbying, burnishing the Tata
Tata does not seem to believe in image and fixing things in Delhi.
the independence of independent His main strength is his public Now, it spends Rs60 crore on
directors even though the persona. He has crafted his Arun Nanda of Rediffusion and
Tatas have built a great public reputation so phenomenally well, Edelman PR. The latter employs
perception of fairness and values. says an insider. He is paranoid about 1,500 people on the ground, the
Mr Tatas strategy, now, is to it. He gets detailed information bulk of who are deployed for the
make life difficult for Mr Mistry everyday about what has appeared Tatas. Then there are lawyers
and take him out of all equations. in the media about him and lobbyists in Delhi who used
He would like to tell Mr Mistry to draw massive fees from the
that he has no locus standi in operating companies. I had to
the group, says a person close to Mr Mistry. He was a ease out several hangers-on who are prone to flaunt their
director at Ratan Tatas pleasure. Actually, he made this proximity to power, confided Mr Mistry to someone
very clear earlier. When Pallonji Mistry, Cyruss father, close to him.
stepped down from the Tata Sons board, Ratan Tata
promised to induct Cyrus or his brother, Shapoor, on the Tata Trustees: Mr Tata controls the group through 14
board. But he did not do it for a year. He was sending a Tata charitable trusts which hold 66% of the groups
signal. He wanted to tell the Mistrys that they may have holding company, Tata Sons Ltd. But Ratan Tata is the
a 18.5% stake but zero rights. chairman of the trusts and so he controls the group.
Over the years, Ratan Tata, whom the Tata satraps He appoints other trustees who hardly have any say.
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Many are indebted to Mr Tata for making them trustees. longer period. When Ratan Tata was the chairman,
Being on a Tata trust can change a person; I have seen it Pallonji Mistry used to raise the issue of increasing
myself, says someone close to the group; it is considered dividend. Mr Tata only sneered at him. The dividend
a great distinction. How many of them have the courage that the SP group earned was just about Rs60 crore
to tell Mr Tata that the way the group is dealing with there was no increase. The 2025 Vision plan formulated
Mr Mistry is downright ugly? by Mr Mistry, in fact, had a discussion on dividend policy.
The bigger issue is that many trustees may not Today, the dividend paid by Tata Sons is only 10%. It was
understand the deep trouble the Tata businesses are in. to increase gradually to 15% and then plateau, as per the
When the Tata-Mistry spat started, VR Mehta, a trustee plan. Also, under Mr Mistry, dividend has actually gone
of the Sir Dorabji Tata Trust was chosen to speak for the up compared to what it was under Ratan Tatas regime.
trustees. He claimed that, under Mr Mistrys watch, the However, Mr Mehta did not let these facts come in the
Tata group was dependent on only two companies, Tata way of his opinions.
Consultancy Services(TCS) and Jaguar Land Rover(JLR). Mr Mehtas understanding is that if there is a choice
Dividends to the trusts from Tata Sons had gone down between strengthening the operating companies by
and it affected the philanthropic activities of the trusts conserving cash or declaring dividends, one should give
which was unacceptable. preference to declaring dividends to the holding company.
The facts are a little different. The SP group has been He seemed clueless about the fact that the pie has to get
just as concerned about dividends, more so for an even bigger for each persons share of it to increase. If the
initiating legal proceedings against Siva, and the timing of Nitin Nohria, as representatives of the Tata trusts.
of Mr Mistrys ouster, seem curiously connected. Interestingly, Keki Dadiseth, who sided with Mr Mistry
Siva has a deep and longstanding relationship as a director of Indian Hotels (IHCL), is a director in
with Ratan Tata. Siva may have been paid nearly Piramal Enterprises. Also, Deepak Parekh who supported
Rs600 crore between early 2003 and mid-2008 Mr Mistry in IHCL, and Nitin Nohria are directors
towards services relating to procurement and vendor in Piramal Realty. Immediately after Cyrus
management by TTSL and its listed subsidiary Tata Mistry was sacked, Ralf Speth, heading JLR, and
Teleservices Maharashtra Ltd. Also, the Tata group N Chandrashekharan, of TCS Ltd, have joined the board.
has forked out Rs330 crore to purchase Dishnet DSL, Nitin Nohria plays a key role as Mr Tatas confidante
a Siva group company in 2004, at a huge valuation. although he lacks understanding of Indian companies
The second reason for Mr Mistry being targeted and the Tata ethos, says an insider. He has often asked
is probably the AirAsia scam. Sources close to whether India has any Chapter 11 provision (of the US)
Mr Mistry suspect that, maybe, he was getting too under which Tata Teleservices can file for bankruptcy.
close to things that may land on the doorstep of Mr Mistry had to tell him even if there were, we cannot
Mr Tata. Mr Mistry had ordered an audit into the go down that road. Can you imagine what would
Rs22 crore payment to unknown parties that was be the perception about the Tatas; and, if we do that,
flagged off by Ernst & Young (EY). Mr Mistry what would be the impact on our borrowing cost?
appointed Deloitte as the forensic auditor. Deloitte Mr Nohria is the dean of Harvard Business School (HBS).
established bogus payments (for work not done). Coincidentally, six years ago, the Tata group pledged a
One of the payments was connected to a company $50-million gift to HBS, the largest donation it has ever
called Link Media which got Rs12 crore. Link Media received from an international donor.
is literally a bogus company. It was supposed to be All the Tata Sons directors, barring one (Farida
a ground-handling agent. Finally, it appears that R Khambata), supported Ratan Tatas decision to oust
Venkatraman, a confidante of Ratan Tata, his former Cyrus Mistry. All of them also appear to have supported
executive assistant and now a trustee on every single Ratan Tatas decision to sack Nusli Wadia for siding
of the Tata Trusts, is on the board of AirAsia and also with Mr Mistry on various Tata boards. Till today, the
has a 1.5% stake. Venkat earns a whopping salary of Tatas have not produced any evidence that Mr Mistry
over Rs3.5 crore, if you add up earnings of all trusts. was acting against the interest of the group, despite
The Deloitte report came out in October 2016. But publishing a full-page advertisement in the newspapers
the Tatas have chosen to take no action. to explain their action. The lack of independent voice in
Tata Sons board should be a major red flag for investors.
Teflon-Coated
The Tatas under Ratan Tata have a long history of getting carried away with new
projects, acquisitions and people. In any other organisation, a manager would have had
to pay a price for any one of these. But nothing ever seems to touch the Tatas Teflon-
coated image. Indeed, Mr Tata is accusing Mr Mistry of non-performance when he is
infact cleaning up Tatas mess. And he is being supported by some of the biggest names
of the Indian corporate sector.
Pre-1991: Mess at Nelco, which survived mainly on orders secured from Tata group companies.
1999: Tata Tetley: Grossly overpaid acquisition that took years to digest.
2003: Dishnet DSL: Grossly overpaid acquisition from friend Sivasankaran that turned worthless in a year.
2001: A 500-crore Tata Finance scam authored by Mr Tatas blue-eyed boy Dilip Pendse.
2002: AF Ferguson being forced to withdraw its report on Tata Finance because it implicated many Tata
stalwarts. YM Kale, a professional of highest integrity, forced by his own partners to resign in the most shameful
manner.
2003-2008: Various hotel acquisitions that inflicted huge losses and had to be written off.
2004: Backdoor entry into telecom.
2007: Corus, a grossly overpaid acquisition. Mounting losses
2007: Loan of Rs1700 crore by Tata Realty to Unitech, facilitated by Niira Radia. The money was allegedly used
by Unitech to pay, for 2G licences.
2008: Ambitious Nano project that has lost more than Rs1,000 crore and will have to be shut down.
2008: Tata Sons bought one-third stake in Piaggio Aero, an Italian aircraft company, because of the close
relation between Ratan Tata and the promoter of Piaggio Aero. Tata Sons exited the company at a loss of
Rs1,150 crore.
2010: Voltas: Land held on lease by Voltas was sold to Dr Shanmuganathan, a Malaysian, for roughly one-
eighth of its estimated value. The agent to negotiate this deal used to be employed by a firm owned by
Rajathi Ammal (Karunanidhis wife).
2011: 2G Scam. Sychophantic letter to Mr Karunanidhi, lavishing praise on A Raja, then telecom minister.
2014: Side-agreement with DoCoMo which has landed Tata Teleservices in a $1.16-bn soup
2016: AirAsia: A forensic investigation revealed fraudulent transactions of Rs22 crore involving non-existent
entities in India and Singapore by the AirAsia and Tata alliance.
and IHCL. Of these, the IHCL directors have shown Sons and Tata trusts, because that would concentrate
solidarity with Mr Mistry. He continues to be the too much of power in the hands of one person. There is a
chairman of Tata Motors, Tata Chemicals and Tata veto power of 30% with the Tata trusts. Trust nominees
Steel, although Ratan Tata would like him to be thrown have to be independent. They are making the board of
out of every Tata company. TCS has replaced Mr Mistry Tata Sons impotent.
with Ishaat Hussain, a Tata Sons director on the board 3. The third is the issue of compliance with the market
of TCS. Tata Beverages has passed a resolution removing regulators insider trading and corporate governance
him as chairman which, Mr Mistry charges, is illegal. norms. Information moves through various layers in the
Independent directors of these companies are in a state group rather freely. Tata companies share information
of shock. Tata Power is the only major Tata company with their boards and upwards to Tata Sons directors. But,
whose board is yet to meet. We still cant believe that for strategic issues, Mr Soonawala and Ishaat Hussain
Ratan Tata is doing this, says an insider. are often consulted. One of the two said at a meeting: I
am asking for these details in my individual capacity. I
A New Governance Structure am not asking as a trustee. If SEBI investigates whether
Can this clumsy three-tier structure, fortified with there is scope for price-sensitive information passing on
hangers-on, consultants and lobbyists, continue? It has to Tata Sons, Tata trustees and consultants even before
not worked well so far, especially since the group has no the board of the operating companies has approved
clear-cut succession plan. Indeed, it could be a disaster, them, the group would have a tough time explaining.
especially since the same person could head the Tata There is no clearly laid down policy and system today.
trusts and Tata Sons. There are three issues thrown up Realising all this, Mr Mistry had started working
by the Tata-Mistry spat. on a new corporate governance framework. He
1. A governance structure that protects the groups wanted to create a fair and transparent governance
interests, especially since Mr Tata structure with the lines of power
has now invited ace dealmakers to and accountability clearly drawn.
the Tata Sons board. Mr Mistrys If SEBI investigates whether There were elaborate discussions
fi ght is not to get back at the helm with various stakeholders and a
there is scope for price-
of the Tata group, says a source. plan was prepared in 2015. He
His objective now is to ensure
sensitive information passing has been telling the Tata Sons
that the companies should stay in
on to Tata Sons, Tata trustees board lets decide once and for
the right hands and be provided and consultants even before all. Lets not keep flipping and
with the right governance. The the board of the operating flopping. Minutes of the meeting
Shapoorji Pallonji Mistry family companies has approved them, would show that Mr Mistry was
have been shareholders in Tata the group may have a tough pushing for this. We were taking
Sons for over 80 years and Cyrus time explaining legal opinions officially. Darius
Mistry is keen that the leadership Khambatta (legal counsel) was
of the group should not pass into supposed to attend one of these
wrong hands. I dont want the group to be controlled meetings. There are records to show, says a member of
by a coterie that has had nothing to do with the group Mr Mistrys team. He attempted to have it discussed in
and has ulterior motives, Mr Mistry is said to have the board meetings thrice but, curiously, the board did
confided, to people close to him. not find time for it. As the Tata-Mistry spat gets uglier,
This is logical. A fact that is often forgotten is that, especially since Mr Mistry feels humiliated and wants his
while Ratan Tata is acting like the typical lala in deciding reputation restored, this poor governance structure may
who should be on the boards, he has an insignificant 0.8% come to the attention of investors and regulators.
stake in Tata Sons, compared to 18.5% of the family of As against this, the Tatas would want to keep their
Cyrus Mistry. Of course, Mr Tata would want the Mistry reputation intact. There are people in Bombay House
family to disappear. According to our information, Ajay who are masters at scripting the narrative by playing
Piramal, Nitin Nohria and Amit Chandra have met the ethics and fair play card, using the media effectively
international investors with the intention to buy out Mr and starting whisper campaigns. Investors have to stay
Mistrys stake. focused on a simple fact. Who will do the enormous
2. What ought to be the governance structure for the clean-up that almost all companies need if, Mr Mistry is
group? According to sources, Mr Mistry always believed removed from everywhere? That task is onerous. Take a
that a single person should not be the chairman of Tata look at the part two of our Cover Story.
T
he day after getting fired as a Tata Sons chairman, Meanwhile, a recent forensic investigation in AirAsia
Cyrus Mistry hit back with a five-page reply that revealed fraudulent transactions of Rs22 crore involving
exposed how parts of the group were in deep non-existent parties in India and Singapore. This episode
trouble. Why did the Tatas take 15 days to come back is now the subject of a lawsuit and is unlikely to die
with a rejoinder? Because of a surprising weakness in down soon because it seems to be connected with people
Indias largest business group: only Ratan Tata, the very close to Ratan Tata. If this spat between Ratan Tata
interim chairman of Tata Sons, can decide on the and Cyrus Mistry drags on, what can Tata shareholders
public position of the group, according a person close expect? We have summarised below what various Tata
to the situation. He was busy and travelling during this group companies are facing and what shareholders can
period. He found time only two weeks later to review expect from each of them.
and approve the statement.
Does this centralised power structure give a clue to Tata Steel: A Pension Fund with a Steel Plant
the shareholders about the decision-making they can Problems: Anglo-Dutch steel giant, Corus, was one
expect, as Mr Tata seeks to remove Mr Mistry from of Ratan Tatas prized acquisitions, but he paid a
various Tata group companies? After all, shareholders horrendously expensive price for it, ignoring the fact
of Tata companies face a long list of problems that that this commodity business is at a cyclical peak.
need urgent and continuous attention, starting with Indeed, it is a fitting case study for management students
the expensive foreign acquisitions that have gone sour, about how Mr Tata got carried by the bidding process
leaving the group with a large debt overhang. There and snatched the company at a 30% higher price than
are also the highly capital-intensive domestic businesses what was being offered by the Brazilian rival. This kind
that are haemorrhaging money, like the Nano project deal-making machismo saddled the company with huge
and the telecom businesses. Between 2011 and 2015, debt not only for the assets purchased but also for the
capital employed in IHCL (Indian Hotels Corporation pension fund liability which is running at 15 billion;
Limited, Tata Motors, Tata Steel (Europe), Tata Power wags called Corus, a pension fund, with a steel business
(Mundra) and Tata Teleservices (Maharashtra) Ltd because it pays the pension of 130,000 British employees
(TTSL), rose from Rs132,000 crore to Rs196,000 crore, when 12 out of 13 employees do not contribute to it.
which is more than the Rs174,000 crore net worth of the But Mr Tata has never displayed what is called a buyers
group. A realistic assessment of the fair value of these remorse about this scandalous acquisition, nor has he
businesses could potentially result in a write-down over been questioned about it.
time of about Rs118,000 crore, wrote Mr Mistry, in a Over the next four years after its acquisition,
letter to the Tata Sons board. Ratan Tata failed to rev revive Corus and Mr Mistry,
Mr Mistry had done a dispassionate onate after exploring various options,
o decided to exit the
analysis of these hobbled businesses nesses business with minimum damage. From
and launched a systematic clean- lean- 2009 till date, the company has
up. Why was this unacceptablee to provided for impairment losses
pro
Mr Tata? Both, the overseas seas of about Rs28,000 crore. In his
acquisitions and large-scale domesticstic letter to the Tata Sons board,
lett
expansion that have turned into o a Mr Mistry has hinted at potential
major drag, were the outcome of impairment losses in excess of
im
Ratan Tatas ambitious strategy gy Rs60,000 crorehigher than
Rs
between 1999 and 2010. Mr the cost of acquisition. The
Mistrys moves amounted to o letter
let also alleges aggressive
undoing his strategy, however accounting
ac by capitalising a
flawed. Then there are the egoistic substantial
su portion of product
new forays that are bleeding, too, development
de costs creating a
and need to be addressed. Tatas as have future
fu liability. As the asset is
invested in AirAsia and Singapore re Airlines (Vistara), over-valued
ov since inception,
which have a slim hope of ever ver making money. economic benefits fromfro the asset do not match the
value carried on its books. Mr Mistry wanted to shut it down but Mr Tatas
Mr Mistrys Solutions: Mr Mistry has speeded up the emotional attachment has held back this crucial decision.
implementation of the Kalinganagar (Odisha) steel plant Possible Solutions: To make a turnaround, Mr Mistry
of Tata Steel. He also toured China to understand the had apparently outlined four areas for immediate
dynamics of the steel business because China is the main attentioncost, quality and productivity; improving
player in steel todayit is the biggest producer as well as customer experience; regular introduction of new
consumer. He concluded that the steel business enjoyed products; and sprucing up the brand image. He also
a super-cycle in 2003-2008 and the current downturn is suggested refreshing the design of vehicles, bringing in
not just a normal correction. Many excesses of the boom a new platform, improving supplier performance and
period are still to be wrung out. He pursued a merger closer collaboration between the Indian passenger car
of Tata Steels European steel unit with Thyssenkrupp division and JLR. He had played a hands-on role until the
AG. In October, Tata Steel reaffirmed that talks are appointment of Guenter Butschek as CEO and managing
progressing with Thyssenkrupp. Combining forces director after a longish
would have enabled Tata, Europes second-biggest gap, after which
steelmaker, and third-ranked Thyssenkrupp, to better had stepped
use the facilities and cut costs. back. A
It is here that lenders have inserted covenants in the
loan agreements allowing them to pull the loans if Tata
Steel ceases to be a part of the Tata group. This creates
a piquant situation because Ratan Tata has reportedly
assured British unions that he will not sell Corus, now
that he is back in the saddle. On the other hand, if the
company turns independent, or Cyrus Mistry remains
the chairman, he is more likely to take a practical
decision to pare assets and cut the debt. Remember,
Indian shareholders are paying for a loss of 1 million-1.5 key factor
million pounds a day on account of Corus. was to rebuild
What Happens Now: It is a very emotional decision to employee confidence after
get rid of the English white elephant for the Anglophile the Nano fiasco. The Tata Motors team was banking on
Ratan Tata who loves the adulation he gets as one of the a good reception for Hexa, an SUV to be launched in
largest employers in UK. Media reports say that he is January 2017, whose digital promotions have apparently
keen to hang on to it but does he have much commercial shown a lot of public interest. Mr Mistry has also put
choice? The more he delays the decision to get rid of it, together a joint working team with JLR to allow the
the more uncertain will be Tata Steels future and the Indian operations to benefit from the British experience.
less money the company will have for its expansions, What Happens Now: Tata Motors has strong leaders for
including the Kalinganagar plant. both, the domestic operation (Guenter Butschek) and for
JLR (Ralf Speth). However, it needs to have a far better
Tata Motors: Small Card, Big Problems product portfolio for its domestic business (commercial
Problems: One successful move of Ratan Tata was the vehicles and passenger cars). This is not in the offing over
acquisition of Jaguar Landrover (JLR), which has saved the next year or so. The September 2016 quarter results
the group. Before this acquisition, Tata Motors was a have been poor. In August, the management agreed to
commercial vehicles company, which had diversified slow down investment in the development of a new
into passenger cars, that was losing money. Sources close Nano and focus on a two-seater sports car, in addition to
to Mr Mistry say that Tata Motors is under-reporting funding the development of the Hexa and Nexon SUVs
expenses. It has followed an aggressive accounting and the Kite 5 sedan. None of this solves Tata Motors
policy to capitalise a substantial portion of the product current problems.
development expenses, creating a future liability. They
also say that Nano was intended to be a car below Rs1 India Hotels: Checking Out
lakh; but the costs were always above this. This product Problem: Between 2003 and 2014, Ratan Tatas
has consistently lost money, peaking at Rs1,000 crore. favourite, Raymond Bickson, ran IHCL and almost ran
Profi ts are nowhere visible. The Nano plan makes it to the ground by a rash of investments across the world
3,000 cars from an installed capacity of 100,000. at fancy prices. Mr Bickson earned a compensation
of over Rs10 crore a year even as the company was brands may be axed and all its hotels branded under the
incurring losses. IHCL had housed the Searock property broader Taj label.
at Bandra (Mumbai) in an off-balance sheet structure, What Happens Now: If Mr Mistry is removed from
alleges Mr Mistry. This artificially reduced its actual IHCL, Mr Tata would most likely fire Mr Sarna almost
immediately and hire someone who would change the
course of this group in accordance with his wishes. This
will, most likely, involve postponing tough decisions. If
so, the stock price will languish.
K P R Mi l l s Coimbatore.
KPR Mills has a yarn division with production
Strong & Steady Growth capacity of 90,000MT, a fabric division with
production capacity of 27,000MT, a fabric processing
K
PR Mills has vertically integrated division with 9,000MT capacity and garment
manufacturing capacities in India and manufacturing facility with a capacity of 95 million
produces yarn, knitted grey & dyed fabric garments per year. All of these manufacturing facilities
and readymade garments. It also has three active are based in Tamil Nadu; only the sugar manufacturing
subsidiaries, Quantum and Co-gen plant
Knits Private Limited, KPR are based in Bijapur
Sugar Mills and Jahnvi (Karnataka). It also has
Motors Private Limited. windmills with energy
Quantum Knits production capacity of
manufactures readymade 61.92MW which supplies
garments mainly for around 60% of power
exports. KPR Sugar has requirements of the textiles
a capacity for crushing unit.
5000 tonnes day (TCD). The garmenting
This subsidiary also has capacity is undergoing
a production facility of another expansion by 36
Co-gen, producing 30MW million, taking the total
of energy. The third subsidiary, Jahnvi Motors Private capacity to 95 million garments per year, with a capital
Limited, is a retailer of Audi cars and has an outlet in expenditure of Rs150 crore and will go on stream
soon. Another capital expenditure, of Rs120 crore, is
Performance Gets Rewarded planned to increase the fabric processing capacity from
25MT to 50MT per day for FY16-17. This will be
Adjusted closing Price in Rs
funded from internal accruals and bank finance. KPR
1,400
Mills has also managed to reduce its debt:equity ratio
to 0.98 for FY15-16 from 1.12 in FY14-15.
1,200 KPR has had large cash flows for two years but
the expansion spree that the company has undertaken,
1,000 has again affected the free cash flows which stood at
negative Rs2.15 crore for FY15-16.
800 Some 36% of the total sales are achieved through
exports, mainly of readymade garments. KPR Mills has
600
reported strong results for the September 2016 quarter.
Nov-15 May-16 Nov-16 Sales went up by 24%, to Rs755.39 crore (Rs609.59
crore), and net profit growth was 56%, to Rs81.19
Disclaimer: None of the stock information presented constitutes a recommendation or a solicitation of any offer to buy or sell any securities. Information presented is general in nature that does not take into
account your individual circumstances, financial situation or needs Although information has been obtained from and is based on sources we believe to be reliable, we do not guarantee its accuracy and the
information may be incomplete or condensed. All opinions and estimates constitute our judgement as on the date of the report and are subject to change without notice. Past performance is no indication of future
results. Investors must do their own research before acting on them. Data Source: Centre for Monitoring Indian Economys Prowess database.
Those who have subscribed to the stockletters should only follow the stocks recommended there.
A da ni P o r t s and S p e c ial E c onom ic Z ones Adani has 19 subsidiaries, four step-down subsidiaries,
two joint ventures and one associate company. After
Port of Call having made capital investments for several years in
creating modern facilities, it is time for the company
A
dani Ports and Special Economic Zone (Adani) to reap the benefits. For the quarter ended September
is an integration of three verticals, namely, 2016, revenues were up 18%, to Rs2,183.05 crore
ports, logistics (Rs1842.30 crore),
and special economic and net profit shot up
zones (SEZ). It has 68.26% to Rs1,095.89
a pan-India presence crore (Rs651.32
and owns and operates crore), over the same
ports and terminals at period last year. The
nine locations across operating profit for
the Indian coastline. the quarter was up by
Its flagship port, 23%.
Mundra Port in the Last year, Adanis
Gulf of Kutch, is the RoCE (return on
largest commercial capital employed)
port in the country. was 14% and RoNW
-500
270
-1,450
-3,350
150 -4,300
Nov-15 May-16 Nov-16 11-12 12-13 13-14 14-15 15-16
(return on net worth) was 22%. The stock is trading 6.6MMT (million metric tonnes). For the year ended
at sales to market-capitalisation ratio of 7.95 and March 2016, cash from operations was Rs2,578
operating profit to market-capitalisation ratio of 12.45. crore while it needed to make investment of Rs4,665
The debt:equity ratio stands at 1.53 for FY15-16, not a crore and had to borrow an additional Rs2,447 crore.
lot lower than 1.59 for FY14-15. This leaves no free cash flow for the shareholders.
The problem with the business is that it still Nevertheless, it is a good stock to track, since the
requires massive capital investments which have to be business has little competition.
funded by borrowings. For instance, work is under way The promoters hold 58.94% while foreign
to expand the Adani International Container Terminal institutional investors hold 17.14% and domestic
(AICTPL) in Mundra. Construction is due to be institutions hold 14.95%. The stock price rose from its
completed next year when the Terminal will be capable 52-week low of Rs165.96 on 12 February 2016 to its
of handling 18,000TEU (twenty-foot equivalent 52-week high of Rs317 on 25 October 2016. The stock
unit) container vessels, with a cumulative capacity of was trading at 276.50 on 11 November 2016.
K a j a r i a C e ram ic s
Slower Growth & Demonetisation Impact
Double Whammy Adjusted closing Price in Rs
740
T
iles market leader, Kajaria Ceramics, has
captured over 10% of the market share and has 675
achieved an average sales growth of 21.09%
610
and average net profit growth of 31.49% over the
545
480
415
Nov-15 May-16 Nov-16
A s a h i I ndia Gl as s
Expansions Paying Off
Transparently Better Rs Cr
110
A
sahi India Glass Limited (Asahi) has reported
a 10% rise in revenues for the September 2016
60 Free Cash Flows
quarter, to Rs615.97 crore (Rs561.814 crore),
and a huge 63% rise in net profit, to Rs33.35 crore
(Rs20.52 crore). The operating profit was up 26%, 10
to Rs118.14 crore (Rs93.8 crore). Asahi had made
net losses for three continuous years, from FY11-12
-40
to FY13-14, and made net profit of Rs42.02 crore
-90
11-12 12-13 13-14 14-15 15-16
K E C I n t e r n at ional
Can It Now Surprise?
Infrastructure Business Adjusted closing Price in Rs
170
Doing Better
150
K
EC Internationals profit grew 130% y-o-y,
to Rs65 crore, driven by strong operational
130
performance, though revenue during the
September 2016 quarter increased only 3%, to
Rs2,121 crore y-o-y, on slow growth in transmission 110
UN UOTED
STORIES OF PRICE MANIPULATION
M edicamen Biotech is a
pharmaceuticals company
and has been in this line of business
345
The total borrowings stood at Rs19.45
crore for FY15-16. Medicamen says
that debt has been taken for capacity
since December 1993. It claims to 260 expansion and for research and
have two formulations plants at development; however, no significant
Bhiwadi (Rajasthan) and Haridwar 175 3619% outcome can be seen. Meanwhile, the
(Uttarakhand). The company earns stock jumped an enormous 3619%,
40.8% of its revenue through exports. 90
from Rs6.72 on 6 January 2014 to
For the past five years, the Rs249.95 on 16 November 2016. The
company has shown no growth in sales promoters held 45.51% of the total
5
or profits. Total sales for Jan-14 May-15 Nov-16
shares as of September 20161.69%
FY11-12 were Rs100.53 crore and lower than the promoter holding as of
have declined to Rs67.28 crore for September 2015. The price-to-earnings
FY15-16. For FY11-12 and FY12-13, it negligible, at Rs9 lakh, Rs44 lakh and (P/E) ratio stands at a ridiculous
reported net losses of Rs83 lakh and Rs48 lakh, for FY13-14, FY14-15 and 101.89. Why is the stock price rising,
Rs4.93 crore, respectively. In the past FY15-16, respectively. Total borrowings despite no growth in sales and profits?
three years, the net profits have been by Medicamen rose to Rs13.69 crore in Will the regulator find out?
MARKET TREND
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and penalty regarding late filing of
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About MAS
MAS is a SEBI-registered investment adviser and part of Moneylife, Indias most unbiased and
pro-investor research and information group. We run Indias best personal finance magazine,
Moneylife. We are not afraid to call a spade a spade. We are Indias only media company to have
set up a non-profit trust, Moneylife Foundation, which is now the largest savers and investors
association with more than 35,000 members. MAS was set up to help investors and savers make
the right financial decisions and handhold them through the entire process.
MONEYLIFE
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T
his world is a wonder. In the quantum worldview, cancer research, and even cancer charity, a fraud! The next
the world runs on energyboth occult and overt. biggest medical money-spinners are the recent addition of
But the world remains an enigma and what we see so many hi-tech vaccines. There seems to be a vaccine for
here is not the reality. What we see is Adi Shankaras maya every illness now. Thanks to the manufacturing techniques
which Nobel Laureate Hans Peter Durr calls Wirklichkiet, and the additives and preservatives, many vaccines are
a drama, in German. capable of creating new diseases like autism. A recent BBC
In reality, what runs the world is money, muscle and documentary shows the dangers of doctors prescribing
brain power. Of the three, the first, money power, is the most too many medicines and doing so many unnecessary tests
dominant. Up until money came into this world, humankind that they are damaging human health, to a great extent.
was altruistic (homo-altruisticus); ever since money came Medicalising death is another big money spinner. The
here, altruism went out through the window and greed last 10 days of the dying contribute to 90% of the corporate
took charge and humankind hospital profits in the ICCU
became mans greatest enemy (intensive cardiac care units).
(homo-economicus). William One must read Atul Gawandes
Wordsworth put it so beautifully wonderful book Being Mortal,
in his poem, The World is too to gauge the level to which
much with us, thus: little do corporate medicine has sunk,
we see in nature that is ours to make money using death as
we have sold our soul to the a tool. When Breath Becomes
devil. Air is another poignant book by
The Innu community study a young brilliant neurosurgeon
in the Innu land, off the coast at Stanford who suffered at the
of Saskatchewan in Canada, hands of cancer specialists!
showed how the Innus, who Way back in 1823, James
were ignorant of the ways Wakeley, a young physician
of this world until Canadian member of the House of
economic system invaded them Commons, investigated to
in 1732, led an egalitarian find that the London doctors,
society without any illness or of those days, were a bunch
unhappiness. With money, came of corrupt, incompetent,
disease and misery. nepotistic fools who were like an abscess on the patients
The most powerful money clout in the world is that body. Being a passionate doctor, he started the prestigious
of the drugs and device lobby which is worth trillions medical science journal and named it The Lancet denoting
of dollars and is thrice as powerful as the oil lobby. The that this lancet should teach London doctors some science
November US presidential election was controlled by the and help drain the pus from the abscess that they had
drug lobby. The documentary film SICKO, by Michel become. Recently, the present editor of that journal,
Moore, shows how every single US congressman and Richard Horton, appointed a medical historian to find
senator is under the thumb of the prescription drug barons. out its impact on the medical profession after nearly 185
They, and their indirect bosses, who pose to the world as years. The reports essence was that doctors have now
philanthropists, are, in fact, real cut-throat businessmen transformed themselves into a huge corporate monstrosity
who live on human misery called illnesses. If that is so in eating into mankinds health all over the globe! God save
the most enlightened country like the USA, one can only mankind from these greedy monsters.
imagine the state of affairs in other countries!
Let us throw some light on how this powerful lobby
tries to medicalise the whole of mankind, to keep its coffers Professor Dr BM Hegde, a Padma
filled. I call that the sickness industry, the most lucrative Bhushan awardee in 2010, is an MD,
one at that. They have even devised a new sub-set called PhD, FRCP (London, Edinburgh,
Glasgow & Dublin), FACC and FAMS.
screening industry which tries to make every human being He can be reached at hegdebm@gmail.com
a patient when he/she comes for a check-up.
Option1: Do nothing.
Option2: Rely on friends, relatives, neighbours, oce accountant, derived wisdom from social media
or the press/TV. (But do they know more than you? And how do you know that?)
Option3: Rely on relationship managers, insurance agents, distributors, wealth managers. (But you
are only a sales target for them)
Option4: Research insurance, mutual funds, markets, stocks, financial theories Become a financial
expert yourself. (Is this practical?)
About MAS
MAS is a SEBI-registered investment adviser and part of Moneylife, Indias most unbiased and
pro-investor research and information group. We run Indias best personal finance magazine,
Moneylife. We are not afraid to call a spade a spade. We are Indias only media company to have
set up a non-profit trust, Moneylife Foundation, which is now the largest savers and investors
association with more than 35,000 members. MAS was set up to help investors and savers make
the right financial decisions and handhold them through the entire process.
MONEYLIFE
ADVISORY
FIX YOUR FINANCES, FOREVER
www.savers.moneylife.in
AM
M
R Sinha, chief general manager (vigilance). They
discussed the course of action and then planned
to go to the Chairman, Maneck N Goiporias
house. But they were told that Goiporia was out
meeting
eeting somebody and would return only after
10 pm.
m. It was then that Khemani and Subba Rao
decided that Sitaraman should be called back.
Theyy even sent somebody over to the branch
and broke
roke open Sitaramans drawer. It was a
desperate
sperate move. There was nothing there...
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M
essages spread over social media or He also explained the system used by income-tax (I-T)
WhatsApp may be entertaining or department to collect information on all types of financial
informative sometimes; but, when it comes
to tax matters, believe in, and disseminate,
information only from official sources, says Ameet Patel,
a practising chartered accountant (CA) for the past three
decades. He was speaking at a seminar-cum-guidance
session on The AIR is a big weapon in the hands of the
tax officer organised by Moneylife Foundation in Mumbai
and supported by Capital First.
Most households in the country would have a few
high denomination notes which are now no longer legal
tender. What to do with these notes? There are two
aspects involved, namely, depositing the money into the
bank or exchanging it for new notes; and the income-tax
implications, he said to a packed audience. transactions, including bank deposits, investments or
However, Mr Patel cautioned, do not rush or take buying property.
hasty decisions based on some posts on social media, To keep a watch on high-value transactions undertaken
WhatsApp or email messages. Please consult an honest
tax consultant or
chartered accountant Who Has To File an FTRA?
and take his guidance The REGISTRAR or SUB-REGISTRAR appointed under Section
about these things. 6 of the Registration Act, 1908;
While explaining The registering authority empowered to register MOTOR
the seriousness of VEHICLES under Chapter IV of the Motor Vehicles Act, 1988;
the government in The POST MASTER GENERAL as referred to in clause (j) of
Section 2 of the Indian Post Office Act, 1898;
weeding out black
The COLLECTOR referred to in clause (g) of Section 3 of the Right
money, he gave
to Fair Compensation and Transparency in Land Acquisition,
the various tax Rehabilitation and Resettlement Act, 2013;
implications for The recognised STOCK EXCHANGE referred to in clause (f ) of
individuals in various Section 2 of the Securities Contracts (Regulation) Act, 1956;
tax slabs.
130
-755
-1,290
120
Godfrey Phillips India 1,391.00 951.95 -32% Nikkei, NASDAQ Composite, S&P 500 and
Mid-cap Gainers/Losers 04 Nov 16 Nov Change
Shanghai Composite advanced 6%, 5%, 4% and
3%, respectively.
Garware-Wall Ropes 525.60 597.10 14%
* 20 O 16 ** 1 N 16
Money Fact.indd 2 18-11-2016 18:39:03
MONEY FACTS STOCKS
Whats H T
Shares of public sector banks were in demand during the fortnight. Bank of
Baroda, Corporation Bank, Indian Bank and State Bank of India advanced
ML SECTORAL TRENDS
Shares of banks rose 2%, while
shares of oil & gas companies
22%, 19%, 17% and 14%, respectively. Punjab National Bank rose 13%. ended flat. Shares of telecom
services companies and energy
Companies 04 Nov 16 Nov +/- companies dipped 1% each. Stocks
of real estate companies and paints
ML Bank Index Bank of Baroda 142.55 173.40 22%
companies declined 17% and 13%,
130 Corporation Bank 40.10 47.85 19% respectively. Stocks of cement
Indian Bank 207.05 243.10 17% companies declined 14%.
Vijaya Bank 41.05 48.15 17%
120
State Bank of India 242.85 277.20 14% ML Sectoral Trends
URBAN INFLATION