Tuesday, October 30, 2012


(An edited version of this REVIEW appears in BUSINESS WORLD of 12th Nov 2012) Title: Return to India Author: Shoba Narayan Publisher: Rupa Publications Price : Rs. 395 Most young Indians desire is to go and make a career outside India. Surely, the most sought after destination is the United States of America. Every youth would love to escape the education system in India and complete the graduation and beyond in USA. Affordability is one important deterrent. One other way to get in is to do very well and get an admission with as much scholarship as one could get. The other way is to get a graduation from a good institution in India and do the post graduation in the “promised land”. Then you take up a job, get a green card and get citizenship. The quality of life and the merit based system is a big pull. Once settled in to a job, the thing to do is to find a culturally compatible spouse from India and melt with the Indian community out there. Life goes on, dreams get bigger and the stay prolongs. At some stage, when the children grow up, the dilemma of ‘return to India’ confronts everyone. Return to India, by Shoba Narayan is a ‘memoir’ of the entire journey narrated crisply. The author, coming from a conservative ‘tambram’ family records the conflict from departure to return. The family elders who do not want her to go, her determination to go and the campus life are recorded honestly. Without going in to details, the author has conveyed the conflicts and the turmoil across the family in embarking on this journey. The conservative upbringing and the value systems remain with her and the happy acceptance of the choice of spouse selected by the parents get narrated faithfully. Emotions play a big role throughout the memoir. The narrative style is appealing because the emotions are conveyed by simple narration of events and a lot of reading between the lines is required. At each stage, the author makes you pause, think and let the reader take a call about which side to take. Nearly two decades of a person’s life are covered very well in just over 250 pages. The author’s love for New York comes through very well. Obviously, staying in the big apple also implies a level of status that not all émigrés to USA will enjoy. To this extent, the memoir steps clear of any economic challenges that an Indian with an average or below average pay packet would face out there. The memoir also captures the change in life once life enters the marriage phase. The arrival of children brings across the conflict between the material things in life and cultural values. The author goes to USA after the formative years were spent with family members in India. Far out in the USA, when your children start on their journey in life, the conflicts begin. Should one leave the children to grow up with life in USA or should one return home so that the children grow up with ‘home’ culture and values? This is the eternal conflict and resolving it is not easy. Till the family emerges, you live life chasing your own dreams. Once children come on the scene you devote all your energies to them. You want to take a hard call on return to India. I guess these are personal calls and each one may react differently. The author does not pass any value judgements and simply states what path she took. At one level, the memoir also tells me a thing or two about financial security for a middle class Indian, especially if you are a ‘Tam Bram”. The education system out here in India drives the cream away from India. In the USA they get to the top of the economic ladder and that gives them the freedom to make choices. Given the prudence of most Indians, they reach financial freedom early enough to be able to make a choice on ‘back home’ option. Along the way, US citizenship for the children gives them the flexibility to follow the path that their parents took. Of course, one also has the option of not returning and let the children grow up there and be a citizen in the true sense. The author does talk about her friends who chose that option. The memoir, at one level, is also about how we handle our urge for ‘freedom’. The societal mores and pressures makes us want to ‘get away from it all’ and seek greener pastures. After doing that, we find that the same threads that we wanted to cut off, continue to pull us. The reason for our escape also becomes the reason for our return. Being a memoir, the author sticks to her feelings and conflicts. As a story, we long to know about the other family members. This is not a shortcoming but a credit to her for staying the course, when it would have been easy to digress. This is recommended reading for all children who want to leave our shores in search of a ‘better’ life. This memoir also tells me why the USA should be the first choice for emigration.

Sunday, October 28, 2012

MY LIFE, MY MONEY- The trap of life insurance

(This article appears in today's Asian Age/Deccan Chronicle) INSURANCE IS NOT INVESTMENT.. The IRDA finally seems to be telling the insurance companies to be more modest about what they should charge as commission or fees from the money that they collect as premium. It may not go beyond this. Of course, they are also imposing ‘fines’ on some companies for paying higher commissions or for delay or denial of claims. The biggest problem with the life insurance companies is that they hardly sell pure life insurance. In the guise of life insurance, they focus more on selling a combination of investment and insurance. Whilst I do not know about the reasonableness or otherwise of the life insurance cover charges, I can say with assurance that the investment products are unhealthy for the customers. The fees and the administrative charges etc amount to more than what a mutual fund or an ETF would charge you. And there is no reason to believe that the insurance companies deliver superior investment performance as compared to the mutual funds. If you have invested in ULIPs you will know about the issues. The insurance companies will only mention the performance with respect to amount invested by them and never on the money that you have shelled out. Even your friendly agent will not tell you what the returns on your own outgo are. There is absolute opacity in the way insurance companies do business. My view is that if at all one has to consider insurance, there are only two sorts of insurance. One is medical insurance and the other is pure life insurance. Both are expenditures and not investments. Do not look for returns. Often, the insurance agent will con you in to buying an investment product, by saying that you will get your money back. Do not fall in to the trap. It is like saying that I will return your money after thirty years, but do not ask me for interest. We see many online advertisements that keep shouting things like “only Rs.600 per month” or some such figure for a one crore life cover. Of course, there will be an asterisk etc so the actual number may come a bit higher. These kind of pure life policies are the best for an individual. Of course, if you have a lot of money and do not have to worry about what happens to your dependents financially after your death, then do not waste money on life insurance. After all, more people live beyond sixty than those who die before this age. So, the odds are in your favour in any case. Take a term policy that gives you life cover, say, till age 50 or 55. By that time, you should have been able to provide for your dependents. If not, it is unlikely you will provide anything more in the few years of earning that you may have. So, around that age, you should stop the expenditure on the life insurance business. Starting early is good, because it locks you in to a lower outgo. The older you are, the higher is the premium for the same value of risk covered. Insurance has to be a rational choice and not an emotional one. The biggest scam going around is ‘children’s policies’. Under normal circumstances, children will live beyond you. Second, if your child were to pass away unfortunately, there is no adverse financial impact on you. So, why do you insure your child? Now, your agent will tell you that the ‘policy’ will pay for education or marriage etc of the child. You have now got in to the realm of investment. Here, the insurance company is not as efficient as a mutual fund. So, invest the same amount in any mutual fund. You ask the agent about the rate of return on the amount you are expected to fork out every month/quarter etc and you will find that it has to be lower than a bank fixed deposit rate or any mutual fund investment. AVOID CHILDRENS INSURANCE POLICIES. If at all you do take a life insurance policy, ensure that you discontinue it once your dependents are financially secure or you have provided enough for them. I would have recommended a full life policy with payment of sum assured on death, provided there was a secondary market for trading in them. You could take the policy and sell it off in your sunset years to someone who will get the sum assured on your death. You could sell it at a discount and enjoy the money. Of course, you could buy such a policy if you want to leave behind a sum for your dependent. In such a case, make sure that your will mentions about who will / should get the insurance proceeds. Mere nomination is not enough, because the nominee merely is an agent to receive the money and it rightfully belongs to your legal heirs. Life insurance is a morbid topic and often agents play upon your emotions to sell you products that make no financial sense. Take some time before you commit in to anything long term. Take a piece of paper and do your homework. If in doubt, talk to others. R. Balakrishnan

Tuesday, October 9, 2012

Time to sell?

This appears in the recent issue of Moneylife. Has some extra comments A FALSE DAWN The gap up opening of the markets on Friday the 14th looks like a kind of a relief rally to me. With so much negativism around, this move by the government to hike diesel prices looks good. However, the flip side is where the negativism in the move lies. This move is not a move to reduce subsidies but a move to bring additional income in to government coffers. Given the extortionist levies on petrol and diesel, surely the ‘subsidy’ is an accounting illusion. People may not agree with me, but if you take a look at the selective subsidies that industry get where the benefit reaches only a few pockets, the fuel subsidy is a more equitable one. A diesel price hike of over ten percent is inflationary and is going to impact everything. Inflation in food prices is already running high and this move is (borrowed quote from a reader who commented on the QE 3 on a website) like ‘throwing wood in to a fire’ to douse the fire. The announcement of permitting FDI in retail and aviation has made people happy, but what it means is yet to filter in. The retail FDI ‘policy’ is a misnomer. One would have expected a government in power to not create a division between states. By saying that the centre will approve and then each state to approve is mindless. This will set a dangerous precedent for all future moves where economic liberalisation is needed. Borders between states are being thickened by such a thoughtless policy. In hard number terms, we will not see more than ten billion dollars flowing in over the next three years. As regards aviation, again it may provide relief and/or an opportunity to a couple of airline company promoters but it does nothing to change the The moves by the ECB and the US Federal Reserve give a reprieve to global markets. Perhaps it would mean additional cash to spare for emerging markets. Already, our markets have witnessed good inflows and the stock markets are on a decent run. The US markets crossed their 2007 highs. Presuming that there is no roll back of a significant nature by the time you read this, we will have a spike in inflation. Freight rates are surely set to go up. Captive power (most SMEs operate on diesel gen sets) costs would also go up. A spiral that would make the RBI even more reluctant to lower interest rates (unless pressurized by the government of India). The other negative impact of the global moves on easing liquidity would be to fuel up commodity prices. Easy availability of money at ridiculously low costs will see more speculative action in commodities. This and the high interest costs would tend to put pressure on corporate profits. The big worry for us would be whether this spike in commodity prices would extend to oil. Logic says that a feeling of wellness across the globe would push up oil prices further. However, the markets may actually go higher for some time. If the government sticks on to its announced price hike in diesel, the presumption would be that our government is serious about reining in fiscal deficit and bring in higher flows to the markets. There would be enough valuation arguments created to encourage this flow. The move by the government to hike diesel prices means an annualised additional recovery of around Rs.20000 crores. Surely, consumer price impact across the board would be far higher than this number. The BSE Sensex at around 18000 is trading at around 17 times FY 2011-12 earnings. For those who like to look at calendar year data, the return is close to 19% YTD for 2012. If earnings grow this year at around 12% (close to long term averages), we are talking about markets valued at nearly 15 times expected earnings for this financial year. Is it cheap? We have fixed income instruments available at eight times earnings. The difference in valuation represents our expectation of future earnings momentum in the stocks as well as a possible fall in interest rates. Should all this happen the rupee could strengthen. Whether it would be significant enough to make a dent on the trade deficit is not clear to me. Perhaps the rising commodity prices would offset the rupee gains. Inflation will be the biggest fight investors and consumers will face. Easing liquidity without doing anything to improve supply side is futile. Increased liquidity will simply chase the same volume of goods. You do not have to be an Einstein to figure out the outcome. So if markets are going to remain strong in the near term, I would reduce my exposure to equities by selling off some of my stocks/mutual funds. Maybe there would be some momentum in sectors that have fallen off heavily over the past six months to a year, but these moves would be without any strong backing on the earnings. The Indian market at 15 times plus forward earnings is expensive and leaves very little room for long term capital appreciation. Clearly, liquidity is driving markets and not corporate earnings. I know and hear that everyone is talking about markets having strength and poised for further highs. In fact there is talk of the BSE Sensex breaking old highs and forming a new high. I am happy to have people like that around so that they provide the exit to cowardly persons like me. R. Balakrishnan