Monday, October 8, 2001,
Chandigarh, India







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Living in consumer society
W
HILE the Indian middle class bears a superficial resemble to its Western counterpart, under the surface it is a different beast altogether. The producer was staggered. “Are you sure we haven’t got the result wrong?” he asked.

Slump in US economy to hit IT exports
T
HE terrorist attacks on New York and Washington have brought above a fundamental change in people’s perception about life. They do not now want to invest, shop and fly as much as they used to do before the fateful September 11, 2001.

Reliance on  UN list
London, October 7
India’s Reliance Industries Ltd has emerged as the only chemicals industry, to find a place in the World Investment Report 2001 list of the top 50 transnational companies from developing countries around the world.

Inflation dips
New Delhi, October 7
A sharp fall in vegetable price pushed the inflation to 26-week low at 4.86 per cent even as there was upward pressure on items including ghee, sugar, atta and fuel products.

In the wonderland of investment



EARLIER STORIES
 
HOW I INVEST

Putting all money in banks not advisable
BRIG (Retd) Tarlochan Singh opines that security of capital, assured returns and tax saving should be the priority while taking any investment decision. After putting in 32 years of service, he retired in 1986 . Though earlier he invested in equities and also took moderate to high risks, but now he prefers being more conservative.

  • Initial investments

  • Investment in equities

  • Post-retirement investments

CHECK-OUT

Check details before buying imported goods
I
F you look carefully at the imported foods that adorn the shelves of retailers these days, you all notice that many of them barely have any shelf life left in them. Suppose the product is manufactured in March, one expects it to be available to consumers at least by April and not in September, particularly when the ‘best before’ date printed on the package is October.

MARKET SCAN

No time for investment
T
HE stock market has shed almost a thousand points on the Sensitive Index during the last six months. The ICE stock like Infoys, Satyam and Wipro have suffered grievously. The old economy stock too have hit. However, many long-term investors have been making investment buying thinking that the market has touched its bottom already.
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Living in consumer society
Amrit Dhillon

WHILE the Indian middle class bears a superficial resemble to its Western counterpart, under the surface it is a different beast altogether.

The producer was staggered. “Are you sure we haven’t got the result wrong?” he asked. In a new Indian television programme that poses an ethical dilemma to viewers each week, the response to this week’s question was startling. A man in financial difficulty was shown finding a briefcase containing well over two million rupees. It was obvious that the money was intended for an orphanage. Viewers were asked what he should do — by a large margin, they said he should keep it.

It was shocking but not a surprise for the many commentators who believe the Indian middle class is a strange animal. On the surface, it is modern. It wears jeans, watches American soaps and MTV, enjoys shopping and upholds family values. It is moving closer to the middle class of developed societies with greater sexual permissiveness, and a willingness, after 50 long years of socialistic frugality, to live it up and enjoy consumer society.

But strip away the jeans and Estee Lauder perfume and you find that it inhabits distinctly pre-modern moral universe. In his book Mistaken Modernity, sociologist Dipanker Gupta says that the middle class confuses the superficial trappings of modernity with westernisation. It fails to realise that your attitude towards others defines modernity better than possession of electronic gadgets or Oil of Olay.

Mr Gupta says that the Indian middle class is comfortable with breaking the law and exploiting social connections because it believes in pursuing only its self-interest. It abdicates the wider social role played by the middle class in the West.

Suhel Seth, anchor of the TV show, believes that the vote shows a middle class ruthlessly bent on moving up, acquiring material possessions and achieving the good life. “I asked some viewers why they responded the way they did. Their answer was that corruption meant the money would never reach the orphans anyway. But this is a convenient way of cloaking their own greed. The middle class always invokes corruption in public life to exonerate itself over its own conduct,” he says.

Two other incidents also highlight the grey zone of middle class morality. During a recent expose of corruption in the political and defence establishment, it transpired that the reporters had illegally used prostitutes to tempt men into compromising positions. Columnists thundered about how the expose might have been in the public interest but this did not justify breaking the law.

But poll after poll showed that most of the middle class believed that breaking the law was acceptable because the end justified the means.

In a poll carried out last month by India Today magazine Indira Gandhi was voted the best Prime Minister India had ever had. The preference for Mrs Gandhi is bizarre given her authoritarian predilections that eventually culminated in her imposition of the Emergency in 1975 — during which basic freedoms were suspended and men were forcibly sterilised.

Pavan Varma, author of The Great Indian Middle Class, says that the middle class likes a leader who can protect its interests and promote its material well-being: “Middle-class India accepted the suspension of democracy during the Emergency with a readiness that betrayed the sole reference point that animated it — its self interest,” she says.

Yet the middle class image of itself is very different. Partha Sinha, the marketing director of the TV programme, said: “We were surprised at the result. We thought that Indians being so moral, they would vote for the man to return the money.”

Clean, honest, and virtuous — that is how the Indian middle class likes to see itself and that is why no one bats an eyelid when politicians declare that India will never have a serious AIDS problem because Indians are ‘moral’ — so moral that the middle class employs children in its homes and factories even though this is illegal; and tortures women for dowry, even burning those who fail to deliver.

Journalist Renuka Narayanan says that middle class morality is simply a facade concealing the group’s insensitivity to the poor and vulnerable. “Everything is I, me, myself. Everyone is categorised as an asset or liability. So a wife can be discarded if she cannot produce a male child. If an elderly widow has no legacy to leave, she can be out of the house.”

In the West, it is a given that economically weaker groups such as single mothers will be looked after by society. But when the Indian Government announced a policy of affirmative action in higher education for India’s lower castes, the middle class howled with rage because this would mean fewer college places for their own children.

In the West, the children of the rich and powerful are expected to bear the brunt of the law if they transgress it. But in India, it is considered normal for a family to use its connections to get offspring off the hook.

The Indian middle class prefers patronage and nepotism to the democratic norms that govern the behaviour of their counterparts in the West. “What we have now is a wallet-driven society,” says Mr Seth. “People respect wealth and power and don’t care how you obtain it.”

Mir Amin, a politician in the state of Uttar Pradesh, has noticed the same attitude amongst voters. “Voters are not impressed by anyone who is genuinely modest or honest. They’d rather vote for a slick, rich man who will have the influential connections and muscle power to get things done.”

And yet the constant complaint of the middle class is the evil of corruption in public life and how it must be rooted out. “That’s because they are both critic and colluder in corruption,” says Mr Varma. “They react to exposes of corruption in high places with glee but refuse to take responsibility for their own string-pulling, bribe-paying, and favour-seeking.”

By arrangement with the Observer

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Slump in US economy to hit IT exports
Lalit Batra

THE terrorist attacks on New York and Washington have brought above a fundamental change in people’s perception about life. They do not now want to invest, shop and fly as much as they used to do before the fateful September 11, 2001. This has already begun to hit the US economy. Tens of thousands have lost their jobs due to slump that has hit airlines, hotels and tourism. Though the US Federal Reserve has promptly tried to boost the sagging economy by cutting interest rates twice in the wake of the attack, economists are still wary about these steps reviving the world’s largest economy.

The views expressed in the article are that of the author and not that of the company he represents.

Back home, the fear of slowdown in the USA affecting the software companies has almost come true. On Thursday, Nortel Networks, one of the largest US-based telecom multinationals, announced that it had decided to reduce outsourcing from India as a part of its bid to beat the technological slowdown. This decision will have a significant impact on the fortunes of India’s three largest companies — Infosys, Wipro and Tata Consultancy Services (TCS). The attacks on the USA have hit the banking, financial service, insurance and airline industries the hardest. The first three are among the top IT spending industries. It is believed that the earnings impact resulting from the economic losses will curb IT spending further. This, coupled with the loss of business days will adversely impact the export of software service from India, the results of which will be visible in the performance of companies in the next two quarters.

As regards the market, there has been some respite for the players. It has made a strong rally on the last two trading days of the week, mainly fueled by the Nasdaq — led rally. Although the markets remained choppy most of last week, the uncertainty seems to have made some way for improvement in sentiment.

The sensex closed firm on Friday with a week-over-week gain of two points. While the markets are showing all the characteristics of an uncertain phase, the undertone seems to be slowly improving. The index will, however, continue to face resistance on its major upward move. The sensex might test 2,830 again before the downtrend resumes. The upmove is likely to be led by tech stocks over Monday and Tuesday. Among defensive stocks Ranbaxy looks bullish, but it is in overbought zone and should be bought after a correction. If 2,830 is passed the short-term rally could extend all the way to 2,900 before the downtrend starts. Moreover, the threat of a war will prevent any major upward move in the markets.

In a swift move, the Centre on Friday said that it had sold 51 per cent of its holding in Computer Maintenance Corporation (CMC) to Tata Sons for Rs 152 crore. It also sold 74 per cent equity of Hindustan Teleprinters for Rs 55 crore to Himachal Futuristic Communications Ltd. The agreement for the sale will be completed this week. The price concluded was Rs 197 per share, against the ruling market price of Rs 204. Within the next two days Tata Sons has to make an open offer and the offer price will be Rs 280 per share which is the 26-week average price for the scrip. The management control will be handed over on the day the open offer is made. The government orders will continue to be given to CMC for two years after the sale and to Hindustan Teleprinters for four years.

Mahindra & Mahindra

The story at Mahindra & Mahindra (M&M), India’s third largest auto company has been not different from that of its peers in the industry. Last year, M&M’s, profits dropped to Rs 120 crore from Rs 236 crore in the previous year. The first quarter of the current fiscal year further dented M&M’s image when it posted a loss of Rs 29 crore.

But the worst seems to be over for the company. M&M’s tractor business is preparing itself to launch a large number of products which are currently in the pipeline. The company hopes to launch more than 20 products that will come out by 2003, including a four-wheel driven tractor the Arjun series. A lot of these tractors will be launched in the export market. Besides, the company has made substantial progress in its voluntary retirement scheme (VRS). This will reduce the cost structure substantially. More savings are expected from material costs as well. All this coupled with general recovery, that is expected in the automobile sector, bodes well for the company and the investors can go bargain hunting in M&M’s stock which offers tremendous value at the current price of Rs 60.

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Reliance on UN list

London, October 7
India’s Reliance Industries Ltd (RIL) has emerged as the only chemicals industry, to find a place in the World Investment Report (WIR) 2001 list of the top 50 transnational companies from developing countries around the world.

The report is published every year by the United Nations Conference on Trade and Development (UNCTAD).

Hutchison Whampoa Ltd of Hong Kong, with diversified industries, tops the list with total assets worth $ 48,157 million.

Reliance Industries, with total assets worth $ 6,733 million, was ranked 41 in the Foreign Assets ranking, and 47 in the Transnationality Index (TNI). The TNI is calculated as the average of three ratios: foreign assets to total assets, foreign sales to total sales and foreign employment to total employment. PTI

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Inflation dips

New Delhi, October 7
A sharp fall in vegetable price pushed the inflation to 26-week low at 4.86 per cent even as there was upward pressure on items including ghee, sugar, atta and fuel products. The annual inflation, which had dipped to 4.96 per cent in the last reported week, fell by another 0.07 per cent in the week ended September 22, even as fuel items, which lay dormant for the last seven weeks, rose by 0.2 per cent as if responding to uncertainty in the Asian subcontinent over US retaliation.

The index was comparatively higher at 6.34 per cent in the corresponding period in the previous year. PTI

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In the wonderland of investment
A.N. Shanbhag

Q: I have a property. I am selling it after six years of purchase. How can I sell it with maximum price and save capital gain?

— Rajesh

A: Contact a good broker dealing in property matters. These days, some of the housing finance institutions, particularly HDFC, offer the service of locating a buyer for you. The extent of your capital gain tax would depend upon your cost of acquisition. If you do not want to invest in another property to save this tax, you may considered investing the capital gain amount u/s 54EC (Nabard Bonds) with a lock-in of three years or the newly introduced Sec 54ED (IPOs) with a lock-in of one year. Keeping in mind the state of the stock market, Sec 54EC seems to be a better bet.

Q: I am doing articleship under a chartered accountant and receive monthly stipend. Is this stipend taxable like salary and if so, can I claim standard deduction thereon? Can I ask the CA firm to give me Form 16A to enable me file returns?

I am also working as a registered sub-broker for Co-FDs and MFs. The broker under whom I registered applies TDS if my brokerage amount against my income as expenses? Moreover, can I show the actual expenses incurred by me in traveling, postage, stationery etc., against this income. I also use a telephone which is in my dad’s name. The bill comes in his name. Can I make the payment against the bill directly to MTNL and claim it as my expenses?

— Taxpayer

A: Stipend is normally paid as reimbursement for your actual expenses incurred by you for activities connected with articleship. Any savings made by you out of this amount is chargeable to tax. As regards brokerage, all expenses incurred by you for earning the brokerage income are permissible deductions from the income, if you can prove having actually incurred such expenses. It is safer to give the kick back by cheques instead of in cash. You should also obtain receipts from your clients. I would prefer you to maintain a log of telephone calls made by you and pay the amount to your father by cheque. Understandably this amount will be less than the MTNL bill.

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  rc
HOW I INVEST

Putting all money in banks not advisable

BRIG (Retd) Tarlochan Singh opines that security of capital, assured returns and tax saving should be the priority while taking any investment decision. After putting in 32 years of service, he retired in 1986. Though earlier he invested in equities and also took moderate to high risks, but now he prefers being more conservative. He is one of those investors who invested in several schemes of UTI, but today wants to withdraw all his money from those schemes. He spoke to TNS about his investment strategies.

Initial investments

During the initial years of my job I didn’t really plan my investments and used to put money in bank only. Apart from usual investments like Provident Fund, it was in 1967 that I invested in US-64. That time my priority was return which they offered around 9 per cent to 10 per cent against 6 to 7 per cent offered by the banks.

Investment in equities

When to sell a share is the most difficult decision for a person who gets used to putting money in equities. Before 90s I earned in most of them . Though after that, there hardly have been any gains.

It was around 1979, I started putting money in equities. That time I did not study much about the market and mainly bought shares as per advise of friends etc, but I always made it a point to invest in good companies.

I had shares of Reliance, Larsen and Toubro, Telco and DCM, which gave me good returns. Here I made money and kept re-investing that money in share market itself.

In early 90s, however, things started changing. I put some money in Essar group, Dhar Cement, Lunar Diamonds etc and didn’t sell them in hope of earning more on them. The result in my case has been the same as that of thousands of other investors in the country. I lost my money in the shares I bought after around 1994. Master Gain, for instance, at one time had become the most sought after share, the result of which is known to all.

After this experience, I would say that one should venture into equity market only if one keeps a regular track and has a thorough knowledge about the market.

Atleast today it is not advisable to go in for shares. Infact by the end of it I feel even if you keep your shares for a longer duration as experts advise, the return is almost the same as the one you would get in banks .

Post-retirement investments

After retirement I decided that my money has to be safe and tax saving has to be the priority. I put almost all my post retirement money in fixed income government securities like NTPC , where I am also getting good returns. Apart from that, I went in for UTI monthly income plans regularly. However, after the UTI crisis though I am thinking of withdrawing my money from those at the earliest.

In around 1994-95 I also tried various Mutual Funds (equity related) like Kothari Prima, Canara Bank, Indian Bank, SBI Mutual Funds etc. These gave me a good capital appreciation. I also bought Bima Nivesh policy of LIC which meets all my three requirements of safety, returns and tax saving. Recently I have invested in Tempelton Gilt Fund .

Though security of money has to be the prime concern but putting all your money in banks, I feel is not advisable. Gilt Funds, monthly income schemes, provident fund and a good insurance policy, I think are good investments.

(As told to Shveta Pathak)

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CHECK-OUT

by Pushpa Girimaji

Check details before buying imported goods

IF you look carefully at the imported foods that adorn the shelves of retailers these days, you all notice that many of them barely have any shelf life left in them. Suppose the product is manufactured in March, one expects it to be available to consumers at least by April and not in September, particularly when the ‘best before’ date printed on the package is October.

But that’s what is happening and considering that these products are quite expensive, it does not make sense to buy those with a vary shelf life. Besides, in a country where consumer awareness is low and retailers often don’t remove expired products from their shelves, the chances of such foods getting sold and consumed even after their date of expiry are quite high.

Well, a recent notification issued by the government, requiring certain minimum shelf life for imported food products is aimed at stopping such products with a very short shelf life right at the Indian border. According to the health ministry, the notification was found necessary to prevent foreign manufacturers from exporting to India, products that remained on shop counters in their countries, unsold.

The notification, issued by the Ministry of Commerce and Industry, says import of food products will be subject to the condition that at the time of import, the products must have a valid life of not less than 60 per cent of the original shelf life. Accordingly, the labels on all food products will henceforth be checked by the port health authorities to ensure that the above provision is met. And according to a Health Ministry press release, any product not complying with this condition would be rejected at the port itself. It also clarifies that the date of manufacture and the date of expiry marked on the label will be taken into consideration to calculate the minimum shelf life requirement for imports.

But that’s one part of the problem in so far as imported processed foods are concerned. The other is the large scale violation of laws meant to protect consumer interest. To ensure that consumers don’t end up buying stale food, the Health Ministry for example, has made it mandatory for all food package to carry the ‘use before’ or best before date. Printing of date of manufacture is another mandatory requirement. Yet, you will find many imported food packs giving only the ‘best before’ date and not the date of manufacture. And even the ‘best before’ date on some packages mentions only the date and month and not the year. This is a clear violation of the Prevention of Food Adulteration Rules.

During the first quarter of this year, a Delhi-based consumer group the Voluntary Organisation in Interest of Consumer Education, conducted a study to evaluate the implementation of various national laws on packed food products imported into the country. The results of the study, undertaken in collaboration with the Ministry of Agriculture, highlighted what was apparent in the market — gross violations of laws meant to protect consumer interest. The study revealed that 81 per cent of the samples violated the Packaged Commodities Rules as well as the PFA Rules dealing with labelling requirements for food products. Scrutiny of 457 samples of food products imported from a number of countries, including Malaysia, Thailand, Germany, Korea, Italy, Australia, Denmark, the USA, the UK and Indonesia, found 58 per cent of the samples without the required information on the month and year of manufacture. Similarly 55 per cent of the samples did not indicate the batch number and 76 per cent did not carry the name or address of the Indian importer. The study also found many of he packages containing colours and flavours which were not permitted under the PFA rules.

This brings us to the urgent need for better and stricter enforcement of food laws in respect of all imported foods and strengthening of law enforcement machinery at the ports of entry. Consumer pressure can also play an important role in ensuring compliance of laws by importers. Consumers would, therefore do well to check the label information on these products before purchasing them. Look for the best before date and reject those with a short shelf life. Also make sure that the product that you purchase gives the full name and address of the importer because in case of a complaint, you may need to contact not only the retailer, but also the importer. And do not buy products that give incomplete information. 

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MARKET SCAN

by J.C. Anand

No time for investment

THE stock market has shed almost a thousand points on the Sensitive Index during the last six months. The ICE stock like Infoys, Satyam and Wipro have suffered grievously. The old economy stock too have hit. However, many long-term investors have been making investment buying thinking that the market has touched its bottom already. Others have been purchasing blue-chip equities with a view to “averaging” their cost of purchases done earlier at much higher prices. But the “averaging” has not done any good to them. It is quite on the cards that the next year may be even worse than this financial year. The economy is not doing well and the corporate sector performance may suffer.

There is no doubt that Infosys and other leading ICE companies may be reporting good second quarter results, but it is quite possible that the next year results for the financial year 2002-03 may report much lower earnings. Nortel Networks, one of the largest US Telecom companies, which covers 4.5 percent sales of Infosys and 8 per cent sales of Wipro has announced that it would cut down its outsourcing from India next year. At present, India accounts for 76 per cent of Nortels’ outsourcing.

The US recession and the global economic crisis are bound to affect our exports as well as software sales during the next financial year. Freight charges as well as higher insurance cover increases would surely affect the earnings of our export companies. It is quite obvious that the divided rates would be pruned.

In the present market, some low-level trading may be in order but investors must wait for the third quarter results for long-term investments and that too with the understanding that the corporate earnings for the financial year 2002-03 would decline. In case the monsoon plays us false, things would be much worse for the country and the economy. There are reports that the sales of FMCG companies like Hindustan Lever are likely to report fall in their sales for second quarter.

It has been announced that US-64 would announce its NAV in February, 2002 and it would be quoting on this basis. It may around its per value but if it is lower, the investors would suffer.

We are passing through difficult times. There is also the looming scepter of mass unemployment among graduates with technical degrees and training in computer and software skills. Some of the major companies are announcing VRS in order to cut down their expenses and to adjust themselves to recession.

It is best to wait and watch the market for the next five months or so before making long terms investments.

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