Thank you for the support

We announced our services on the blog about a month ago, and I wanted to write a quick post to thank you for all the support, inquiries and conversations since that time.

The most rewarding aspect of this has been the fact that the people who contacted us have been reading the blog for several years now, and already understand our philosophy and nature of our services.

Shiv and I are grateful to your support and have our hands full right now, so we have decided not to take on any further consultations till the time we finish off with our ongoing ones. The exception is if you have already started talking to us but not finalized the agreement yet, then that’s fine, we will still continue working with you.

We also got a few inquiries from people who weren’t sure if they need an advisor or not, and were sitting on the fence and sought our direction on that.

I thought it would be a good idea to share some of my views on the subject here.

I think this is like hiring a trainer in a gym or going to a gym class as opposed to just going to the gym. Not everyone needs to hire a trainer and not everyone needs a class, but everyone can benefit from going to the gym.

If you have good money habits, are comfortable with your finances in life, and are generally in control then I don’t think there is any need for you to hire someone to look at your finances, except when you are mistaken about these things, but I feel that there aren’t many people who are mistaken about such things because it would show up in their day to day lives as well.

I think the most benefit comes when you have a question that you haven’t been able to successfully answer, or are generally unaware if your investments are optimal or not, and if you have enough money saved to meet all your goals, or in some cases don’t even know where to begin with.

A little introspection easily answers those questions, and that’s all you need to know whether you need someone looking at your finances or not.

Please don’t construe this to mean that you can’t write to us and ask us about specifics to seek direction, but in most cases, we won’t be able to give you an answer. It is really you who needs to answer this question.

Once again, Shiv and I thank you for all your support, and I’ll post an update in a month or so when our current engagements end to let people know we are ready to start with new engagements.

Edelweiss’ ECL Finance Limited 12% NCDs – June 2014 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at

Edelweiss Financial Services’ subsidiary, ECL Finance Limited, came out with its first NCD issue in January this year and the issue got oversubscribed on the 2nd day itself. The company then decided to close the issue on the 3rd day due to such oversubscription. Boosted by such a good response, the company is all set to launch its second public issue of unsecured, redeemable, non-convertible debentures (NCDs) from June 17th i.e. the coming Tuesday.

Size & Objective of the Issue – The company plans to raise Rs. 400 crore from this issue, including the green shoe option of Rs. 200 crore. The company plans to use the proceeds for various financing activities, including lending and investments, to repay its existing loans, for capital expenditures and other working capital requirements.

Credit Rating of the Issue – Two rating agencies, CARE and Brickwork Ratings, have rated this issue as ‘AA’ with a ‘Stable’ outlook. As mentioned above, these NCDs will be unsecured, unlike those offered during the first issue.

Coupon Rate & Tenor of the Issue – Last time, there were two tenor options – 36 months and 60 months. This time the company has decided to issue its NCDs for a duration of 70 months and that is the only tenor option. The company has decided to offer 12% per annum rate of interest, payable monthly, annually or on a cumulative basis at the end of 70 months.

ECL Finance vs. Muthoot NCDs –Muthoot NCDs issue is also open for subscription right now and it is scheduled to close on June 26. As you can check from the table above, Muthoot is offering relatively lower rate of interest. For a period of 60 months, Muthoot is offering 11% p.a. payable monthly, whereas ECL is going to pay 12% p.a. for 70 months payable monthly or annually. Muthoot is offering 0.50% extra if you opt for its annual interest payment option.

Also, ECL is offering to more than double your money in 70 months’ time, whereas Muthoot will return exactly the double of your investment in 75 months’ time.

Apart from being the issues of two different companies with different business models, ECL Finance NCDs are unsecured, whereas Muthoot Finance NCDs are secured, except the last option of 75 months.

Minimum Investment – If you want to apply for these NCDs, you need to invest a minimum of Rs. 10,000 i.e. at least 10 NCDs worth Rs. 1,000 each and in multiples of 1 NCD thereafter.

No Additional Benefit to Edelweiss Shareholders – In the last issue, Edelweiss shareholders were entitled to an additional coupon of 0.25% p.a. over and above the base coupon rates. No such special benefit has been granted to the shareholders this time around.

Categories of Investors & Allocation Ratio – The investors have been classified in the following three categories and each category will have the below mentioned percentage fixed in the allotment:

Category I – Institutional Investors – 30% of the issue is reserved

Category II – Non-Institutional Investors – 20% of the issue is reserved

Category III – Individual & HUF Investors – 50% of the issue is reserved

NCDs will be allotted on a first come first served basis.

NRIs Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.

Demat & TDS – Demat account is not mandatory to invest in these bonds as the investors have the option to apply these NCDs in physical form as well. Also, though the interest income would be taxable with these bonds, NCDs taken in demat form will not attract any TDS.

Listing, Premature Withdrawal & Put/Call Option – These NCDs will get listed on both the national exchanges i.e. Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). The investors can always sell these bonds on the exchanges anytime they want, but there is no put option with the investors to redeem these bonds before the maturity period gets over. The listing will take place within 12 working days after the issue gets closed.

Financials of ECL Finance

I covered the profile of ECL Finance while posting its first issue in January, so I don’t think there is a need to do it again. Rather I would like to cover its updated share of financials and product line here.


Table 3(Note: Figures are in Rs. Crore)

As you can check from the table above, the revenues of the company grew by 25% last year from Rs. 650.64 crore to Rs. 812.28 crore. Profit after tax (PAT) also rose 32% from Rs. 121.17 crore to Rs. 160.04 crore. This clearly shows that the company is on a growth path despite challenges in the economic environment.

As the loan book witnessed a satisfactory growth of 27%, gross and net NPAs of the company also jumped to 1.24% (0.52% earlier) and 0.35% (0.16% earlier) respectively. Capital Adequacy Ratio (CAR) also declined to 16.06% from 18.40% in the previous financial year, but it is still above the RBI’s stipulated minimum requirement of 15%.

Performance of its Listed NCDs of Last Issue


With a falling interest rate scenario and analysing the price performance of its NCDs of last issue, it seems to me that this issue also is fairly valued at 12% p.a. rate of interest. The only issue I have is that these NCDs are unsecured in nature. But, again I think the risk is fairly compensated with 12% p.a. rate of interest.

Application Form of ECL Finance NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in ECL Finance NCDs, an investor can reach us at +919811797407

Weekend Links – June 13 2014

Let’s start this week with perhaps the most significant event of the week – a computer passes the Turing test.  The Turing test is a simple and elegant way of judging the extent of artificial intelligence, and a computer passes this test when in conversations with humans it deceives them into thinking that they are talking to another human being.

Perhaps equally significant, in a first for a company a meaningful size, Tesla Motors which is a producer of electric cars has put all its patents in the public domain and is encouraging others to use their technology.

The ET has a good profile on Vishal Sikka – Infosys’s new CEO. 

The Indian Express has a great profile on India’s superspy.

A hopeful news story in FE about secretaries being asked redundant acts and rules in their ministries.

WSJ on stock picking for the long – long haul. 

The NYT on what causes weight gain. 



Dogs of war find meaning in a meaningless world

Let’s start this week with an excellent post by John Elliott on how the last elections should have been the end of Rahul Gandhi’s political career but they probably won’t. This is a great post because of the details it gets into about what Rahul Gandhi has been up to in the last few years, and also the rationale behind recent choices by the Congress party.

The Indian Express on the need to fix the energy policy in order to fuel growth. 

Politico magazine on how big money influences and to a large extent determines election results in the US. 

I was fascinated to discover how Google calculates traffic for Google Maps.

 Leo Tolstoy on finding meaning in a meaningless world. 

Very touching story about a whale who tried to communicate with humans.

Finally, a great way to end this post is through this article that shows shows pictures of 40 dogs of war working in Afghanistan. 

One income tax change that the Narendra Modi government needs to bring

I don’t know how many readers will recognize this headline, but it is just one word changed from a recent headline in an ET article. The article in question talks about six changes they’d like to see and going through that article reminded of the very first draft of the Direct Tax Code which came out in 2009.

That draft was the best draft of DTC that came out, and it was great for its simplicity and potential effectiveness. It proposed the following tax slabs which I thought was one of the best things about it.

  • Up to Rs. 1,60,000 – Nil
  • Rs. 1,60,000 – Rs. 10,00,000 – 10%
  • Rs. 10,00,000 – Rs. 25,00,000 – 20%
  • Above Rs. 25,00,000 – 30%

If there is just one change I’d like the government to make, it will be this change. Raise the tax slabs for almost everyone, and let people benefit from the lower taxes.

However, this is a simplistic view because it doesn’t tell you where the shortfall is going to be met from and that is a problem because the Indian government isn’t exactly loaded with money.

What I would do is get rid of all tax exemptions under Section 80C and save the government some money there. I think this will be very good for most people whether they know it or not, and in most cases they wouldn’t actually know it.

In looking through portfolios of several people along the years, I’ve realized that the number one cause for problems is buying tax saving products towards the end of February and March. When the taxman comes knocking, they reach out to their relatives and friends in a bid to buy something that will save tax.

Usually, that something is sold to them, and that something has got high commissions, opaque returns, and long lock-ins. The beauty of this combination is that it allows you sell the same crap year after year without the customer understanding what’s going on.

This is a really big problem, and people are losing a lot of money because of it without realizing it, and in a lot of instances the entire category of financial products is getting a bad rep because of this, and then people are just turned away from everything altogether which makes the situation even worse for them.

I changed the one word from that headline because I felt the solutions that were being proposed there and elsewhere don’t attack the root of the problem and maybe to some extent even extend it because they don’t offer simplification and removal of the poor incentives that exist in the financial industry today.

Update: Corrected tax rate for the above Rs. 25,00,000 slab. 

Some interesting facts about Israel’s Desalination Program

I’ve heard interesting tidbits about Isreal’s desalination program over the years, but never realized how big it was, or how successful it was until recently when I came across this article which started with this impressive line:

“After experiencing its driest winter on record, Israel is responding as never before — by doing nothing.”

India and Isreal have vastly different geographies but I was still curious to see if there were any lessons for India from this program specially since California has tied up with an Israeli company to build a desalination plant which will be operational in 2016 and provide 50 million gallons of potable water in a day.

Fundamentally, water desalination is the process of taking sea water and purifying it to make it potable. One method to do this and used by Israeli companies is called “Seawater Reverse Osmosis“. In this process, seawater is run through pre-filtration pipes to clean it prior to running it through another filtration process that removes all of the salt.  About half the water becomes potable, but the remaining half retains higher concentration of salts and minerals, and that is then returned to the sea.

This is an expensive process, and it is estimated that desalinized water costs $0.65 per cubic meter while water from fresh water sources costs about $0.15 per cubic meter.  This process also requires electricity of course, and the usual sources of generating electricity are hydro, coal or natural gas.

Then there is the impact to the environment, although I couldn’t find any reports that conclusively said the effects were bad for the environment, it probably hasn’t been that long since this process has been in use to provide any conclusive evidence one way or another.

Interestingly enough, desalination is not only done to sea water but also to brackish water, which is the kind of water that’s more saline than fresh water, but less so than regular sea water, which immediately reminded me of how water used to be in Noida several years ago. This kind of water is usually found in estuaries where sea water and fresh water meets.  Israel has got several smaller plants that treat  brackish water in addition to its larger plants that treat seawater.

While desalination is the attention grabbing action, there are other things that they have done which are less glamorous but also quite effective. They have what is called the “National Water Carrier of Israel” which is a system of canals, pipes and reservoirs that transfers fresh water from the Sea of Galilee in the north to the central and southern regions of the country.

They also have a highly efficient system of recycling water, and using treated sewage water for irrigation purposes which is done very efficiently there, and in 2009 the UN named Israel the world leader in water recycling. 

Going through all this information about Israel’s program shows you how effective their multi-pronged effort has been and they have not only made progress in sea-water desalination which grabs headlines but other relatively cheaper alternatives too like treating brackish water or building a network of canals which might be easier for other countries to follow at first.

Thoughts on 100% FDI in Defense

I was delighted to read that the government has already moved to allow 100% FDI in the defense sector, and I hope the measure passes, and doesn’t get stalled like multi brand FDI.

Currently, India allows 26% FDI in defense but the policy is so restrictive and unfriendly to investors that hardly any FDI has been received in the sector at all.

A few years ago India was reported to become the biggest arms importer in the world, and that trend has continued since then, and India was still estimated to be the biggest arms importer in 2013.  In fact it is estimated that India imported 14% of the global arms between 2009 – 2013 and among the top ten countries that import weapons, India’s domestic production is the second lowest trailing only to Saudi Arabia. Last year India became the top importer of arms from the US estimated to be $1.9 billion, and the total defense imports were estimated at $5.9 billion.

Given India’s geography, and relations with neighbors, there is no chance that the need and spending on defense reduces any time in the near future. India’s defense budget was hiked by 10% last year and Rs. 2,24,000 crores are expected to be spent in defense services this financial year, and World Bank estimates put India’s military spending at 2.4% to the GDP. 

All of this simply points to the fact that India has traditionally, and will continue to spend a lot on defense, and a lot of that money goes abroad since the country simply doesn’t have the knowhow to produce most of this arms and equipment domestically.

It is a no brainer to create conditions that allow India to procure more of its weapons domestically instead of sourcing it internationally, as not only does it save on the imports bill it gives a much needed boost to manufacturing as well, which will of course spur employment and boost the economy. India has opened up to foreign companies in several fields so far and hasn’t experienced any downside in any of those fields, and if you look at the consumer goods in your own house, you will see that the normal customer has benefitted from the presence of international companies in India tremendously.

When the multi brand FDI proposal was introduced there was a lot of discussion about what it would mean for Indian traders and customers, and not enough on whether it was attractive enough for foreign companies to even contemplate investing in that area. This proposal might be similar in that there are so many safeguards, and conditions built in that the deal is no longer attractive to an investor and that’s something to be wary of or at least keep in mind so that further amendments can be made to make it attractive and tenable for both parties.

Thoughts on retrospective taxation

The market has been doing quite well the past few months, and the hope is that the new government brings out policies, and clears roadblocks that further encourage investment, and in turn encourages FII money in the country, and help the overall economy as well.

With today’s globalized economy, it is no surprise that foreign governments and companies take as much interest in Indian policies as Indian companies themselves take, and one of the issues that has been coming up recently is retrospective taxation.

The most prominent example is the Vodafone case where the tax authorities wanted to charge capital gains on Vodafone’s acquisition of Hutchison Essar; the Supreme Court ruled in favor of Vodafone, and then the Indian government decided to change the laws relating to capital gains taxation accruing from cross border acquisitions where an Indian subsidiary is involved, and make that rule applicable retrospectively from 1962.

Since then Vodafone has decided to take this case to international arbitration as the dispute wasn’t getting resolved by other means.

The Japanese government has also brought up this issue recently with the Financial Express reporting that Japan has asked the current government to drop a $3 billion retrospective tax bill on Mitsubishi and Honda. 

Retrospective taxation is a bad idea and I hope the current government abandons the pursuit of tax revenues in this manner. This is changing the rules of the game after the game has long started and is grossly unfair. Imagine the uproar if someone raised the current income tax rate by 5% and made that retrospectively effective from the past 10 years, such a thing would never pass, then why force a foreign corporation to pay such a tax? For people who support the amendment saying it plugged a loophole, I think that is very weak ground – you can certainly plug a loophole for future purposes but it is incredibly unfair to plug a loophole retrospectively especially when that involves working around a Supreme Court judgement.

This is high handed behavior that certainly doesn’t encourage a positive investment environment, and sacrifices good long term policies and economic system for a short term gain to cover the revenue deficit, which it anyway failed to do.