Theory in Progress
Peter Bernstein will be remembered for two masterly books – one on the history of gold and the other on the history of risk. Earlier, he had written a book called Capital Ideas, which is a fine piece of work as well, narrating the history of the central tenets of modern investment theories. In that book, he discussed the role of Harry Markowitz, Eugene Fama, Bill Sharpe, Myron Scholes and others in developing ideas such as the relation between risk and return, the benefits of diversification and valuation of options. This book takes off from where Capital Ideas stopped.

Bernstein starts by strongly defending all those who crafted the efficient market hypothesis (EMH), capital asset pricing model (CAPM) and modern portfolio theory (MPT), which have fetched several Nobel prizes for Markowitz, Scholes and others but which have been ridiculed by many successful practitioners as ivory tower finance. These theories were found to be too neat in the hurly-burly of the markets, based as they are on the assumption that all market players are rational and all prices incorporate all available information. Then came behavioural finance, pioneered by Daniel Kahneman, Amos Tversky, Richard Thaler and others, which underlined the crucial role of the individual investor’s psychology and the collective behaviour of the crowd which goes mad in bull markets, thereby significantly influencing investment outcome. This exposed the shortcomings of MPT, EMH and CAPM. They were branded as peddling ‘ivory tower finance’.

Since then, the two camps have been at loggerheads. Bernstein adds new light to the whole issue by narrating how the insights developed by the academics in the ‘ivory tower finance’ mould have been taken forward in the real world by Barclays Global Investors and Goldman Sachs Asset Management to develop winning strategies. This book is not as gripping as the earlier one. It is dry (the subject is) and the characters Bernstein describes are not colourful. But it is probably the only book so far which documents the recent history of applied financial innovation drawing from modern financial theory. It is a must for all serious students of finance, who must know that the whole topic is still evolving, as the title suggests. – D.B

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Funny Rules
I have come across some cases of banks and insurance companies asking customers to do some ridiculous things. I wish to point them out here because many of your readers may be encountering similar demands.

1. Can a receipt for payment be dated 15 days after the date of payment with no payment details being mentioned on the receipt?

2. If the date of an ECS mandate is prior to the due date, such a mandate cannot be accepted, but if you pay before the due date by cheque, it is fine!

3. If you pay before 31st March but the debit in your account is in April, you can still claim tax benefit for such payment, even though the law requires you to make payment before 31st March. What happens if such a cheque bounces? You may still get credit in tax! Some people may be using this loophole deliberately.

4. State Bank of India says that signature verification can be done only by the branch manager. It says, even their existing customers must furnish a photocopy of their passbook for past one year while applying for a loan. When I pointed out that the branch is on core banking mode and they can see the whole account at their end, I was told this is the procedure and must be followed.

5. A private sector bank says that a company is not an entity in law! If you want a car loan on a company’s name, then the MD must be a co-borrower because that is the policy. Also, you must get your signature verification on four different forms; one form will not do because that is their procedure.

6. Salary accounts cannot be in joint names of husband and wife. Some banks allow this and some don’t. So what is the real position? If you want to protect the salary-earner, then the operating authority could be given to the first-holder only. Why not have the account in joint names?
Anil Agashe, Pune by email

PRO-INVESTOR REFORMS NEEDED
The last issue of MoneyLIFE was very good. The stocks selected for analysis are all quality stocks. Nava Bharat is showing good strength. About Shree Cement, all we can say is that in a bearish market, people forget values and in a bull market they chase euphoria. Thanks for your piece on Genus with its unique features. About the unusual re-listing price of KGN and Sylph Technologies, the regulators stand exposed once again. Also, in Shyam Telecom and SVPCL, investors will be the only losers. There is a lot of work to be done for our market to be fair. Events like KGN, Sylph or English Indian Clays make a lot of investors lose confidence in the market. They believe realty and gold are much safer investments, even if they are more expensive. These incidents should be seen as trust-breakers rather than just a single act of over-speculation. I remember one incident of 1995-96. I bought shares of Gujarat Fun and Water Park after reading an article in The Economic Times and looking at its financial results. The stock was hitting upper circuits. Just a week after my buying, trading stopped and remains so until today. I don’t know why. That was my first step in the market. It was a lesson to study stocks, before purchasing any. I also believe that, in general, all IPOs need to be regulated and IPOs from government companies should be banned. People invested in these companies and lost 40%-80% of their capital in just a few months. Even without the crude oil price factor, how can a company valued at Rs5,000-Rs10,000 crore during its IPO trade at just Rs2,000-Rs4,000 market-cap after few months?
Santosh Mhamunkar, by email

UNWANTED DEPOSITORS
Please refer to Crosshairs under the heading “Not Wanted” (MoneyLIFE, 8th May). It is true, that when organisations are small, they run after new customers to prove their customer-friendliness. When they become bigger, they have scant regard for the same customers on whose shoulders they rode. ICICI Bank is no exception. They were keen to welcome people to open an account when they came out with the new concept of ‘Quantum Flexi Account’. Many, like me, opened such accounts. Things went very well for a few years. Now, they indirectly dissuade customers from continuing their Quantum Flexi accounts. To harass customers, they started deducting TDS on interest for every swipe from FD - despite customers submitting their TDS exemption form (15G or 15H, as applicable). Their contention is one must submit the TDS exemption form for every withdrawal where tax becomes applicable on the interest. They categorically confirmed that we need to submit 12 forms for each month!

Despite my submitting 15H (being a senior citizen and a high net worth customer from the beginning of April 2007), this is the third year when TDS has been deducted. This compels us to file the IT return just for the TDS refund; otherwise it is not required as income is less than taxable limits. Of course, getting IT refund is the other pain. Many customers have closed their Quantum Flexi accounts. I had it taken up to the highest level but in vain. Even the Income Tax department specifies one TDS exemption form for one financial year. Other banks, like Axis Bank and HDFC Bank, ask for only one form. It is all due to ICICI Bank’s scant regard for small customers. Also, despite reminders, if one does not get the IT refund, then what is the recourse? Is there a way one can approach CBDT or the IT Ombudsman? How effective is the IT Ombudsman? I congratulate MoneyLIFE for taking up issues normally ignored by other publications.
Bipin I Shah, 403, Dimple Heights, Asha Nagar, Thakur Complex, Kandivali (East), Mumbai

LOST MONEY IN FUNDSS
I am enclosing the list of mutual funds in which I have invested as an SIP (systematic investment plan) or a one-time investment. In your recent analysis of fund houses (cover story, MoneyLIFE, 22 May 2008), I did not find any of my mutual funds among the top five. I am worried that I may not have picked the right fund houses and the right schemes. Also, in the past year, I have lost money in whichever fund I invested in as SIP. Although I am in no hurry to withdraw my money and am a long-term investor, please advise me on what I should do?
Commander Samir Gupta, by email

Our ranking of fund houses does not favour those that make too many NFOs. (This is because NFOs are usually planned when the market is bullish. As we have pointed out time and time again, what is a good time for funds to raise money may not be the best time for investors to subscribe.) However, this kind of ranking may not be correlated to short-term fund performance. Unfortunately, we do not offer recommendations on individual portfolios and that too of mutual funds. The problem with your approach of investing in many diversified equity funds is that they have very similar exposures and they fall and rise often at the same time. In short, collectively, they don’t offer any diversification. -- Editor

FINE PROGRAMME
We thank MoneyLIFE for the music concert of Begum Afroz Bano on 1 June 2008. The music was just great and nostalgic, taking us back to the great musical times of yesteryears. Your magazine has done a great service not only to the senior music stalwart but also to listeners and lovers of such music which is hardly heard these days. Pt Birju Maharaj commented very rightly that if the corporate world spent even one-tenth of the amount they spend for cricket, to promote a few cultural activities of our country, they would do a good service to our rich heritage. We hope you continue in this direction to serve the society and provide an inspiration to other corporates. After all, performing arts need patronage to thrive and will not then die, as we all fear.
Drs Rodhan and Rekha Shroff, by email

DUPED BY RELIGARE FRANCHISEE
I have worked for ONGC for 31 years and resigned at the level of executive director, corporate planning. I have joined Reliance Industries in their petroleum division as senior vice president, geosciences. I am an account-holder with Axis Bank and I also hold a joint account with my wife Dr Anjana Sen in the same bank for portfolio management. Sandeep Roy Choudhury is our wealth manager. My wife and I opened a pair of trading accounts with Religare, recommended to me by an old colleague in Nov/Dec 2007 for Rs five lakh each. I am regretting the decision. Supradip Ghosh, who has a franchise with Religare, made great promises. Even as late as April 2008, he stated that all my capital investment would be returned to me by June 2008 with profits. He kept me in the dark about my investment and went about trading recklessly. I was able to get the Excel sheets showing statements of transactions only at the intervention of their corporate office. These clearly indicate how recklessly the investments have been made. Mr Ghosh now callously states that ‘everybody else has suffered like that’ and has no plans to redeem such losses. This is in total contrast to what he had promised when he came for the sales talk.
I am a service-class person and all this money is tax paid. My wife has booked a flat in Faridabad and this money would have come in handy for paying my loan instalments. I had sent mails to Religare but other than their usual form letter and the account statement, they have nothing else to say. I had a discussion with Sandeep (Axis Bank) who suggested that I seek your help. I would like to discuss the matter with a senior person in Religare who could take up the issue seriously, own the responsibility for such erosion of capital and suggest means to redeem the loss. The account needs to be shifted from an incompetent franchisee like Supradip Ghosh to a more conscientious wealth manager. A plan of action to redeem this loss needs to be worked out. I need your personal intervention to take up the matter at the highest level with Religare. Small investors like me need protection and should be made aware of the risks involved before tall claims are made by Religare or their representatives. Kindly also advise if this matter should be brought to the notice of SEBI, unless it is resolved.
Gautam Sen, by email

Help Us to Help You
MoneyLIFE offers its readers a unique service -- of helping redress individual grievances on a best-effort basis. However, we have limited resources to devote to this effort and can only pursue complaints that come to us by email. We request readers to please send us crisp complaints with all the facts on email (not as an attachment) and send us the supporting documents only if we ask for them. We cannot handle physical letters. -- Editor

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Letters must include the writer’s full name, address and telephone no.
and may be edited for clarity or space.
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As Thought-provoking as Yesterday’s Newspaper
This is not the kind of book that professors of management, especially those from elite institutions like Harvard, normally write. They are good at spinning a new theory on a hot topic around which they hang several real-life examples and wrap it up in a catchy title. A few years later, they spin some other theory, based on a fresh set of selective examples, while the earlier one is quietly dropped. It is rare to find a professor romping across continents and companies, interviewing officials, businessmen, senior executives and thinkers, while their assistants vacuum up a billion pieces of disparate information from the Internet and other places, all of which are then laid out in a long sequence without any central thought. The result? A book brimming with current information about two countries that is as profound and thought-provoking as yesterday’s newspaper. If you read the book, you get to know a lot about China (there is little fresh information or perspective on India) which makes one wonder what is it that Khanna is trying to say?

A pointer to the lack of a central thought lies in the way the book is introduced on the flap of the dust jacket – full of wrong notions and weak ideas. The very first sentence reads: “For the first time since the rise of Western capitalism, entrepreneurs in China and India can ignore New York and London – and still build companies worth billions.” This is a bizarre statement. Could the Tatas have bought Corus without global capital? Even as Khanna was writing this book, dozens of Chinese companies were issuing shares in New York. Experts estimate that India received $40 billion last year from foreign private equity companies for investment in real estate. India’s rickety finances, weakened by continuing corruption and inefficiency, has been propped up by billions of dollars of foreign portfolio investment year after year, until the game was up this year, due to which the market has sunk by 50%. It is factually wrong and simply preposterous to say Indian entrepreneurs can ignore New York and London. The book also claims that “China and India are embracing the world on their own distinct terms.” Isn’t that stating the obvious? Every country has unique features, shaped by history, policy framework and entrepreneurial culture. Botswana and Brazil will obviously deal with the world in distinct terms, as did Singapore and Taiwan.

There are three parts to this book. Part I titled ‘Foundations’ has four chapters that cover statecraft, information and transparency, how China can build by diktat and financial sectors of the two countries. Part II titled ‘Enterprise’ has five chapters that cover Infosys of India and TCL of China; the difficulties of foreign companies in doing business (examples of Microsoft in China and METRO Cash & Carry in India); how the Chinese Diaspora (the famous Bamboo Network) made a big difference to China’s growth; a description of how China’s rural folks are better off; and, finally, the poor healthcare facilities in the two countries. These sections are packed with information – often of the mundane variety. Part III is titled ‘Future’ and, not surprisingly, is the smallest. After all, it is always so easy to describe, but so hard to prescribe. It has four chapters: China’s hard power – its foreign policy to win over despotic regimes from Burma to Africa, to grab natural resources; India’s so-called soft power (Bollywood and other means of winning over the world); and two chapters on historical and corporate connections. Why should the last two chapters appear in the segment on ‘future’ is unclear to me except as a means of bulking up the section. Unfortunately, unlike the other chapters, Khanna could not have packed the ‘future’ section with yesterday’s information! He had to offer ideas and pointers, which are absent. Indeed, throughout, the book only describes. It never prescribes even though businessmen apparently asked him whether they can make money in India and China. The book is precisely meant for those who ask such inane questions and for Harvard and Yale students who cannot locate either of the two countries on the map. After all, if you want to read this book you have to be prepared to encounter sentences like: “The Taj Mahal Hotel borrows its name from India’s best known architectural symbol, located in the northern city of Agra, and stands facing the Gateway of India, a spectacular structure overlooking the Arabian Sea, built to commemorate the visit of King George V and Queen Mary to Bombay in 1911.”

That leaves me with one final issue. What does the title mean? India and China have a population of 2.4 billion. A billion entrepreneurs out of them, that too from countries that rank a poor 120 (India) and 83 (China) among 178 countries in the World Bank’s ranking of ‘Ease of Doing Business’? – Debashis Basu

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