MANU RISHI GUPTHA

C H R O N I C L E O F A R E L U C TA N T B L O G G E R

S A T U R D A Y, F E B R U A R Y 1 , 2 0 2 0 MANU

10 Commandments for promoters of Listed

Companies

If You are a promoter of a listed company and your basic

idea is to loot the gullible public by privatising profits
and socialising losses as recently done by Uber and tried
hard by we-work this piece is a waste of time for you. If
S T R A I G H T I N TO T H E I N B O X
not read on…..
Posts
Google.v top wealth destroyers in last 2 years and You
All Comments
will deduce that the behavioral pattern of all companies
and their promoters is shockingly congruent. Malafide
intent of promoters has resulted in almost entire market
capitalization being eroded away and gullible minority FOLLOW BY EMAIL

shareholders left holding just an entry in their demat

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statement.

At least 1-2 friends/acquaintances send me their

LABELS
portfolios each day for a review and the list of defunct
companies in those, is shockingly long. Thousands of "Great" Britain (6)

companies have just vanished since early 90’s and the apple (1)
erstwhile promoters must all be sipping mojitos in some arvind kejriwal (1)
Caribbean country such as Antigua. A sampler of these is black money (1)
pasted here for nostalgia. Some names were the darling black swan events (1)
of markets - Pentamedia graphics, Aftek Infosys, Crest coronafallout (1)
communication......... demonetisation (1)
donald trump (1)
In a Economic crisis (6)
short life Economy (9)
where
Environment (1)
the
executive bonuses (1)
vicissitud
es of Finance (11)
health, financial bubble (6)
fate or financial run rate (3)
accident great depression (1)
could housing market crash (1)
just kill India (9)
you
indian housing market (1)
instantly
Indian stock markets (2)
doing a
Investments (4)
 Houdini Leadership and Management (20)
on your minority shareholders, wont take You anywhere. Life at Warwick (14)
But philosophy of life later or in some other piece. life purpose (2)
Movies (1)
This is not Your Pop’s company
musings of life (6)
Even if you own more than 50% of the company you are
performance evaluation (1)
responsible for and towards the minority shareholder
who has no access to your operations, books, has no say Politics (1)
in management decisions and sometimes millions of Reflections from an Indian
shareholders end up trusting their hard earned money by Perspective (27)
investing in your company in the belief that You would Relationships (6)
do justice to the job that you are supposed to do. You Religion (1)
are a representative of the smallest shareholder who run rate (2)
doesn’t have a voice. seeking alpha (2)
speeches (2)
Don’t overdraw Your salary and misuse Your perks
Strategy (20)
It was shocking to hear way back in Sep 18 that the
tim cook (1)
promoters of Apollo Tyres were drawing close to 12
US elections (1)
million dollars in salary + perks (upto 300% of the salary)
. Obviously minority shareholders revolted and the stock Virgin (1)
price tumbled and never ever recovered from there.
More erosion happened in the market capitalization of
Apollo Tyres when investors realized that the promoters BLOG ARCHIVE

were running a public company like their piggy bank ▼ 2020 (9)
rather than by the loss through their skyhigh salary, ▼ August (1)
despite the muted cyclical performance QoQ. Investors are Dancing - But no
music can be heard
Are You kidding me - Its appalling, when as a minority
shareholder I learn that the manager of my company ► May (2)
(call him promoter for the purpose of respect) is ► April (2)
drawing more salary than the base salary of CEO of ► March (2)
Google , Apple and Microsoft.
► February (2)

The company is struggling for growth, costs are ► 2019 (4)

increasing and the father son duo are breaking all
► 2018 (3)
records while owning only 41% of the company. Nothing
gives them the right to short change the rest of the 60% ► 2017 (8)
shareholders – just because they don’t have a voice. ► 2016 (5)
Obviously the company’s EPS is falling with religious ► 2015 (9)
regularity over the last few years.
► 2014 (2)

I know of a popular Entrepreneur in India who claims ► 2013 (4)

that he hasn't taken a salary hike in 10 years and only  ► 2011 (1)
draws some 2 Mil USD per annum. Its public knowledge ► 2010 (7)
that his electricity bill is 1.3 Mil USD. Isnt it obvious that
► 2009 (39)
minority shareholders are unknowingly paying for all his
lifestyle and his expenses? 

Lesson – No one ever gets a second chance in life and in MY BLOG LIST

corporate world unless you are making a movie – life Nicholas Bate
isn’t a film shoot where you can keep taking a retake Then 7
12 hours ago
unless you achieve a perfect shot. You f%$# up once you Paul Krugman
will never be pardoned. The Blog Moves On
2 years ago

Never take personal holidays in the garb of an official

trip
I know a lot many promoters who travel along with
families on company expense. And mostly in the garb of
an official trip. Imagine giving a pro-rata travel subsidy
to all shareholders. You can get away with all this for a
while, but one day it will catch up with you because its
just not right. And You and Your share price will be
punished.

Don’t load the company with expenses of personal

staff
Your being at the helm doesn’t give you a right to seek
subsidy for your personal staff expenses from the
minority shareholders. Lead a lifestyle that’s afforded
by Your salary that’s approved by the board and is in
public domain. There is a verified story that our Ex
Prime Minister Sh. L B Shastri ji personally paid when
family used the official car in sharp contrast to today's
national political leaders and CEO s and promoters of
listed companies who use the nation and their corporate
authority as their personal piggy bank – and that too
shamelessly.

Watch Your words in Public Domain

You Gentlemen are the custodians of the company’s
public image and reputation. Your public conduct and
character and any tongue malfunction can have
ramifications that are sometimes hard to fathom. If
Paytm was a listed company I would have been very very
wary of buying its common stock and if bought – holding
the same after the stellar performance of its founder
Vijay Sharma.

Demonstrate benevolence and humility

What goes around, comes around is well known to
everyone. But very few can fathom the intensity and
quickness of ‘coming around’. If You are riding a crest of
success, you will most certainly see a trough and a
tempest sometime later in Your journey as a promoter.
Build reputation and relationships through benevolence
and humility so that the world conspires to give you
support when required. Lehman Brothers was the big
daddy when it opposed the bailout of Bear Sterns in
March 2008 when BSC was going down and while there is
very little evidence or data, the rumor has it that
Lehman was left alone when it needed the support a
few months later and while Lehman’s assets and
liabilities matched to a great extent, the powers that be
– allowed Lehman to sink while teaching them a lesson.

The lifestyle of Dick Fuld would have put God to shame

and when his company was in trouble this CEO who was
like a tiger riding a tiger just couldn’t get off – and
neither was he allowed to – by his alleged friends.

Don’t flash your expensive toys and lifestyle

In an ideal world the promoter is really the Chief
Servant of the minority shareholders and in good times
the media christens You as the Branson of Your
respective country ala Mr. Vijay Mallaya but don’t
sympathise with You when You ever land on thin ice. On
the contrary media pulls the carpet under  your feet
when you would least expect it. If Mr. Mallaya had kept
a low profile during his tough times, he would have
easily come out of his troubles and could have still been
enjoying his envious Villa in tropical Candolim rather
than weathering the biting cold of the Hertfordshire.
Does anyone know that Mallaya’s 1 Billion USD in debt is
a fraction of the top defaulting companies in India. If
only he had postponed Eminems trip for his 60th  he
could have gained some sympathy and some reprieve.

The system and the regulator comes after You even

more harshly when they see a diluted intent. Naresh
Goyal of Jet smartly offloaded his headache to the Govt
and the Banks (SBI) and maintained a low decibel
lifestyle and almost took that proverbial Houdini flight
recently while on the other hand the regulators are still
counting cars and houses of the Wadhawan clan ( HDIL
and DHFL ). One hell of a capacity - this Wadhawan
family has to create a systemic faultline.

Lead a frugal meaningful life

Inspite of being billionaires, all the founders of Infosys
lead a simple inspiring life. Help the society thru
genuine foundations and philanthropy. They talk of
values more than the wealth they have created, they
talk of their social responsibility and they don’t hesitate
to call a spade a spade (even at the cost of wealth
erosion in stock price) when they see anything wrong.
The analysts have written off Infosys many times but I
have always tanked up on the share when its going thru
the seemingly ‘baddest’ time - to my financial
advantage.

The culture and character of organisations that is

usually set and left to flourish by the promoters is often
unshakable and its like the stuxnet virus that keeps
flowing in the proverbial veins and arteries of the
organisations for infinite periods of time to achieve the
end objective and common compelling goals of the
organisations. And that’s why Infy always emerges
stronger from every momentary crisis thereby creating
swathes of loyal shareholders who don’t ditch its stock
or the ‘proud part ownership’.

Don’t borrow based on excel sheets and best case

scenario
I have professed before (in a lighter vain) that the
biggest disservice to the corporate world has been done
by Bill Gates for making Excel program that allows the
new age CFO s and analysts to make specious
assumptions of growth and plot it for tens and tens of
years by just dragging the formula across infinitely
convenient columns and make anything look rosy.

The gullible promoters fall for the elusive growth trap

and start expanding to achieve what?? More promoters
fail because of leverage than the ones who are able to
manage leverage to their advantage.

I knew of a CFO at close quarters who would tell his

battery of analysts to just make up the numbers to
borrow from financial institutions thereby putting both
the promoter and the business in harms way. The CFO
moved on to meet his eventual fate of karma etc but
the promoter was left holding a cluster of hot potatoes
and an unmanageable debt portfolio.

In this VUCA world and environment – even if someone is

God s gift to mankind, an unknown variable or an
unknown disruption will take the wind out of Your sail
and at that time margin of safety is what would hold You
in good stead rather than being hit by the train – head-
on from which the recovery is impossible. Simply follow
what Buffet says “find a reason not to invest and then
find a compelling investment” rather than the other way
round.

Don’t frivolously announce buybacks to hide Your

mess
We have seen in Indian markets that the moment a
promoter is caught with his pants down they announce a
buy back as a distraction and diversion (D&D) tactic.
Markets are intelligent and now the investors even
more. And D&D will oft be punished brutally and
sometimes it becomes terribly difficult to emerge
victorious from that. PC Jewellers announced a buyback
to skittle away attention from its abysmal corp
governance when it was caught.
Of course it was D&D and the stock that was the darling
of the analysts and traded at some Rs 600 is now trading
at Rs 20, a 96% wealth erosion…..

Declare dividends as evidence of performance and

real cash
Only hard cash in the hands of minority shareholders is
an evidence of your performance and intent. The
translation of EBIDTA to PAT is the only real evidence of
performance. Don’t hide your mess in the below the
EBIDTA line items. Investors are wise and investors are
unforgiving. Share the company profits with
shareholders. Declare dividends to allow cash to flow to
the mute believers in your performance. Cash is tangible
and its rewarded. Promise of just the elusive capital
appreciation doesn’t hold water with today’s well
informed investor.

Above all – Don’t ever lie

When in doubt – Disclose, has been Mr. Narayan Murthy’s
dharma for the longest period of time and is gospel
truth for corporate conduct. No matter how bad the
news is – Disclosure will always hold You and Your
company in good light

As we see hundreds of companies that are trading at

abysmally low valuations struggle to emerge from even
the realms of nothingness, some of the top companies
where the quality of promoter and management team is
impeccable, continue to outperform the indices and are
rewarded through very rich valuations.

And Lastly

Watch the movie – Snowden / Enemy of the State

Rules are tightening and technology is so advanced that
most of us cannot fathom. Surveillance agencies can
listen to every conversation, track every movement,
map all spending patterns to draw conclusions. Basically
hiding and doing a Houdini on the Bankers and
Shareholders will become more and more difficult. What
the MD of Bhushan Steel recently did like many of his
brethren in the past will become almost impossible as
new Govt policies come into effect and whats the point
in hiding in a remote island / country , away from the
family, not able to return with a solace that You have
billions stashed somewhere.

A noble life full of respect and love from the people

around You, cannot be founded on the bedrock of fraud
and diluted intent. When we die ( which we most
certainly will – sooner than we think ) we become a
I kept wondering thru the meteoric rise of the bank – are robots
evaluating, disbursing and collecting loans. If the same kind of
employees are working across the industry how can Yes be an outlier.
At its peak Yes traded at about 6 times book and 50 PE.

Lesson
Businesses that seem too good to be true are seldom that good. In its
zeal to expand and a soon wanna-be HDFC, Yes took unmanageable
risks and lent out money to every suspicious borrower (everything is
in public domain now - the less said the better) and allegedly grew
remarkably well. But most of its large borrowers had no intention /
sources / business model to pay back. If you are in business or in a
job - Aspire to grow in line or slightly better than the industry, you
will be just fine and the power of compounding will take care of the
rest. In a zeal to achieve stratospheric growth, you not only end up
taking unreasonable risks but also put in jeopardy the existential
probability. Greed kills.

The Business Model and its Conduct

All the readers of this piece would have taken a loan one or the other
time in life and we all know that the .5% processing fees can be
negotiated or even waived off at times. After all processing fees isn’t
a fees for any effort or paperwork (which entails another fee), it’s
part of the business model. It is heard that Yes bank developed an
interesting model of charging humongous amounts of processing fees
(in some cases upwards of 8-10% of the loan amount). This processing
fees reflected in qtrly PnLs as fees income / other income etc and
showed Yes bank to be a very intellectually superior bank that could
generate such large amounts of fees as a proportion of its Net Profits.
What everyone ignored was the fact that the relationship managers
and senior officers on the field were expanding the lending book by
taking undue risks, in some cases with collusion of the promoters,
charging this large upfront fees that would make the deal look
awesome from a short term perspective, earning hefty bonuses for
themselves and eventually leaving the bank with rotten lemons. If
Rana Kapoor was a part of this scheme, its even worse, if he was not,
obviously as the Boss of the bank, he was distracted fighting his petty
battles while losing the war. I would love to be wrong here but my
gut tells me that all these loans would not even have a decent
backing of monetizable securities. Time will tell.

Lesson
Hire people not only on the basis of fancy degrees or self-proclaimed
past achievements. Build teams where the team members have
superior sense of responsibility and unquestionable ethics. Senior
executives should have as much knowledge of philosophy and
psychology as of the subject matter. For only then will they remain
grounded and steer clear of designs based on the foundations of
greed.
Banking industry is rife with examples of executives working on
extreme short termism, earning huge bonuses and leaving a trail of
destruction and sometimes orchestrating the demise of the
institution. Does anyone remember Dick Fuld. He brought down
Lehman and still got to keep the bonuses.
If You are at the helm and operating and building large organisations,
the bonuses of your key personnel should not be tied to short term
paper profits, the sustainability of which is in question. The incessant
pressure of QoQ and YoY growth will most certainly create a fertile
ground for executives to cook books. And they will.

Karma
It was terribly unfortunate that Mr. Ashok Kapur was killed in the
26/11 attacks in Bombay. A bank that was jointly founded by the co
brothers Rana and Ashok then befell to be managed by Rana
Kapoor. Obviously Rana Kapoor didn’t want to give a sliver
of board space away to his co-sister. What was the point
in denying the rightful board seat to Madhu Kapoor and
family.    Rana Kapoor fought tooth and nail to keep Madhu Kapoor
away from the Yes Board. We used to hear about the law of karma
and if we do a misdeed, it will come back to haunt us in our next life.
God perhaps got worried that the present generation in this kalaguya
doesn’t give a damn about the next life and therefore shortened the
turnaround time dramatically. These days Karma comes around rather
swiftly. And in less than a year when the meltdown started the
diamonds of Rana Kapoor got withered away at the price of marbles.

Lesson
We often forget that when we are born we are a mere 3 odd kilos and
when we die we reduce to the same in the ashes that are left behind.
And we cannot take anything along. The amount of time and energy
that Rana Kapoor invested in fighting with his relatives would have
definitely taken a large share of his mind-space and attention, while
his professionals ran the bank aground. Yes came to be respected as a
reasonably good, technologically advanced, and a forward looking
bank. But I will have my cake and eat it too  was the undoing that set
the seeds of banks erosion of capital and credibility.
We teach our children a simple yet powerful lesson Sharing is Caring
but forget the same ourselves along our lives – and then one day we
lose it all or suddenly die. We all know that our time on this planet is
limited but tend to generally disbelieve this for ourselves while
remembering this for everyone else. And if we ever reflect
peacefully, our significance on this ever evolving planet with millions
of years of humanity and over 7 billion of us at any time on this earth
is so negligible that a calculation or real reflection is humbling. So
why be greedy and why not truly remember and imbibe in our
personality the famous Chapter 2 , Verse 71 of Bhagwad Gita that
says we came empty handed and so shall we leave.

Debt and the desire to acquire/hoard more

Pledging the entire holding of his stock to make alternate
investments became a self fulfilling prophesy. When the value of the
stock tanked, all the fair weather friends and lenders didn’t blink an
eyelid before selling Rana’s stake.  
Lesson
We all know that debt is death. Debt works 24 hrs relentlessly,
whereas factories and executives and organisations work for limited
hrs in a day and take weekends off. The modern monetary theory
that professes ever expanding debt and the new age entrepreneurs
and managers who take its refuge might not be able to fully fathom
the ramifications of the same. Some of the most successful investors
and thinkers such as Warren Buffett have rubbished this vehemently.
Avoid debt as much as possible. Depreciating assets and objects of
gratification should never be purchased using debt.
Most Friends and Well wishers only offer umbrellas when its bright
and sunny. The true umbrellas are seldom found when its pouring.
Just remembering this is enough to keep you grounded, responsible
and strategic.

When in doubt Disclose

I am reasonably certain that Rana and the top echelons of Yes knew
that the loan book is far more rotten than what they were disclosing
a few qtrs ago. Else why would the edifice of lies come crashing down
just one qtr later when the new CEO took over. Obviously top guys
were riding a tiger that they couldn’t get off without being eaten (I
remember this line from Satyam’s Ramalinga Raju’s confession in Jan
2009). If these guys had taken RBI seriously and mustered the courage
to come out clean rather than making up the lower than actual NPA
numbers, coming clean on divergences and apologised and course
corrected – which would have been possible only if they
acknowledged the mistake, the markets would have been kinder.

Lesson
‘When in doubt disclose’ - This is what the legendary Sh. NR
Narayana Murthy says about corporate governance. Inspite of all the
personal criticism he stood his ground when he smelt impropriety in a
few transactions at Infosys a few years ago. And I truly respect him
for that. Omkar Goswami came heavily on Mr. Murthy – but then who
is Omkar Goswami anyway.
Shareholders, media and public can pardon a few bad qtrs or a bad
year of financial performance but impropriety and doubt over
corporate governance (even if the net effect of the same is much
lesser than bad performance) is brutally punished and brands can
seldom recover from that damage thereby destroying shareholder
wealth permanently. Corporates and Individuals should choose to lose
money, if need be, as money can be recovered easily over time but a
shred of reputation if lost never comes back. What takes a lifetime to
build can be destroyed in just a second.

We are all born innocent and pure. The vicissitudes of life (everyone
has them) can either derail us from the General Accepted Life
Principles of Propriety or keep us firmly on track and make us want to
be the Human Beings, Managers and Owners that we expect others
around us to be like.
of the cluelessness of the ‘powers that be’, making
policies that are likely to have a significant impact on
this nation and eventually on our lives.

The automobile sales (combination of 2 and 4 wheelers)

are down 30-40% in the last few qtrs., most of the auto
plants are now going through planned prolonged
shutdowns and analysts and economists predict
hundreds of thousands of people losing jobs in the
automobile industry alone.

The EV situation is akin to – Doctors planning to prep, a

deeply wounded athlete, (who’s just reached the ER
with a severe sports injury) for the next athletic event
rather than providing him with the immediate treatment
and putting him on a ventilator to save his life at that
instance.

EVs are the future – no doubt. And while we are staring

at fast depleting fossil fuels across the globe, the world
will have to find alternate sources of assimilation of
energy through solar, nuclear and hydro, but not unless
there is a systemic evolution of infrastructure, culture,
attitudes and character of nations.

For EVs to be fully implemented and assimilated into

peoples lives – far before the crude is fully depleted and
people still preferring the traditional internal
combustion engines, the governments of various
countries esp ‘The’ densely populated India, a network
of charging stations, infrastructure to support, sell,
repair and recycle has to be created, maintained and
sustained. It’s a paradigm shift in the lifecycle of a
nation that has to be effected with multiple catalysts
not just a random reduction in sales tax.
A nation where a small 500 mts flyover takes forever to
build – if it doesn’t fall off during construction ala Calcutta
how on earth do we expect the EV infrastructure to take
shape/establish in a nation where everything moves at a
snails pace unless 2025 was a misprint in place of 3025.
The idea and vision does solicit an entry into the
Audacious Project List but then……

I am reminded of the vandalism on the first ever superfast

luxury train Tejas where the people in the train destroyed
the TV screens and stole anything that could be ripped
apart and stolen and people outside simply practiced
their cricket and bowling skills by throwing stones and
breaking the panes.

Approx 2 yrs ago one of the projects that I was

overseeing was vandalized by local goons on an alleged
assumption of land encroachment (to the extent of .0055
cents approx. equal to the size of a shirt button). The
protectors of their self defined virtuousness damaged
property worth approx. 7 Cr that took 2 more years to
rebuild and operationalise while the bank interest on
the entire project kept piling up. All of these guys are
walking scot free and still doing the narebazi. Till the
time the corruption and ‘I can get away’ attitude from
mind and souls of the citizens isn’t taken out through
swiftly enforceable laws – the future is bleak.

Now imagine the effort to establish a Pan India network

of charging fields, hard shoulders alongside the freeways
and highways and the actual charging contraption that
involves a pole, wire, socket and a network of charging
grid or whatever.

Perhaps all the unemployed people from the present day

automobile industry could be employed as security
guards to protect these charging stations.

Sadly, where we need a chain and a lock to protect a

petty mug inside a train toilet, we would need a far
more robust strategy, execution abilities, set of security
protocols and infrastructure even before we embark on
this EV journey.

In the meanwhile can someone stop dreaming and look

at the bleak present state of liquidity, employment,
infrastructure and the massive slowdown that seems to
have gripped the nation and its industry.

Follow manu on twitter @manurishiguptha

Manu also writes for Huffington Post
body in a second from Mr. So and So. Remember this and
life will be just fine and world will become a better
place.

Manu also writes for the Huffington Post

LABELS: ECONOMY, FINANCE, LEADERSHIP AND MANAGEMENT

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T U E S D A Y, O C T O B E R 2 2 , 2 0 1 9

5 Life Lessons to learn from Rana Kapoor of Yes

Bank

There isn’t an investor I know who hasn’t got scathed in the Yes Bank
carnage. From a high price of 400 in Aug 2018 it touched 28 in less
than 12 months. For easy math – its was down 94% from its peak in a
year and it will have to go up by 1300% just to regain the same top –
if it ever does.

Much has been said and written

about the bank in magazines
and papers and some Astute
and Prolific Journalists such as
Andy Mukherjee of Bloomberg
wrote about and predicted the
troubles of Yes much before the
meltdown began but this piece
is about the philosophy of life and the specific lessons to be learnt
from Mr. Rana Kapoor s leadership and conduct.

All style and minimal substance

Sift thru the internet and a few websites and one would see that Yes
Bank managed to get almost every award in the banking space. Its
alleged greatness was greater than thou and when the industry and
all other banks were showing signs of slowdown and stress it kept
declaring stupendous numbers with the lowest NPA s in industry (even
lower than HDFC bank in many quarters)
Banking is a difficult industry. NIMs are 2-5 % in best case which
implies – to earn a margin of 2% you lend an amount X and hope to
collect all of it back thru the life of that loan and if one large
account defaults, it can wipe out the capital of the bank
that historic day of 13 May 2004 as the results started pouring in, the
obvious didn’t happen – markets crashed from a high of 10th May 2004
to a low just 7 days later by a whopping 28.4%. That’s some fall in 7
days for a size of Indian economy. That was the lack of confidence in
UPA or Congress+allies at that time. Yet from the low on 11th May
2004 to the same years high, the markets rose by 69% in just approx.
one year. And from the same low (1292 Nifty on 17 May 2004) went on
to rise all the way by 392% by 2008 (to 6357 sometime in early 2008).

I still horrifically remember a CPI leader A.B Bardhan (the moment he

realised that CPI would end up being an important ally of UPA) on
national television saying “to hell with divestment of PSUs and to hell
with the economy, and within minutes the markets were locked in
lower circuit. God rest his soul in peace. He did succeed in causing a
serious consternation with his irresponsible statement on that historic
day.

India still shone irrespective of the government. And whilst the

obvious didn’t happen in 2004, the investors ended up making tons of
money and the wiser ones who weren’t in love with their stocks and
could muster the courage to buy when India allegedly stopped shining
in May 2004 and sell sometime in early 2008 smiled all the way to
their banks.

In 2008 the UPA govt took some stand on the nuclear deal, survived a
near death experience when the now defunct CPI withdrew its
support and the general public at large was not expecting the
Manmohan Sigh Govt to scrape thru in the 2009 polls. In so many
years nothing happened on the nuclear front, no new reactor came to
be made and nothing changed for the nuclear energy landscape of
this country……………….

But Boy.. +- 4,5 days from 16th May 2009 (election results date) the
markets went up by 18% around the result time and eventually up by
50.6% in that year alone from the lowest point. And 90.3% in the next
5 years till sometime in 2014.

When the obvious doesn’t happen investors make money and

governments have little or no role to play in how the markets and the
economy performs.

Acchhe Din started on the 16 May 2014 when Mr. Modi stormed
against all odds to become the 14th PM of India. And that year,
because he was the obvious choice and in line with expectations of
the nation, the markets rose a mere 7% in +- 4-5 days of the election
results and a mere 66% in subsequent 5 years of his Prime
Ministership.

I have always believed and the same has been historically and
statistically proved that the best prime minister can add 50 basis
points to the GDP of a democratic nation and the worst can at best
(with great effort) shave off no more that 50 basis points off the GDP.

Now just imagine if NDA was to lose this election against the common
belief of the nation, what all opportunities would that scenario throw
for the prudent and the hungry investor.

Real Estate
Between 2004 and 2008 , people could buy an apartment or a piece
of land in the morning and sell it at a neat profit in the evening. That
was the kind of frothiness that existed in the real estate market.
Brokers in Gurgaon roaming around in antique scooters in 2004 were
driving Hummers and Porches by 2008.

The global recession in 2008-2009 didn’t help but the real estate kept
going up. The economy progressed at a better than expected rate
despite a financial crisis that, some say, was the worst in 100 years.

Real estate that was always considered a safe heaven and an asset
class giving guaranteed return bled to death between 2014 and 2019.
Some of my friends who bought prime real estate in Gurgaon and
Delhi and Bangalore aren’t able to sell their assets at 70 cents to a
dollar after holding their apartments and real estate for 5 years.

The point is – NDA has been a disaster for the real estate market that
has historically been a safe heaven and some estimates say that the
unsold inventory of apartments at a national level is at approx. 7
years. The top 7 cities have an unsold inventory of approx. 700,000
apartments.

A recent article in the Mint pegs UPA II to be significantly ahead of

NDA II in almost all parameters in spite of the worst recession of 2008
and oil at lifetime high during that period.

Obviously much is left to be desired from the performance of this

Govt wrt to real estate.

Corruption
Genetic mutations (Darwins theory of evolution) occur over hundreds
of years. Character of homo sapiens cant be changed overnight. India
over the last 100 years (reasons unknown) became a seriously corrupt
nation. NDA tried hard to remove corruption overnight - Stricter
policy of Aadhaar, Demonetisation, Watertight rules laid down by
MOCA and GST.

Any nation across the planet would have hailed these steps as
revolutionary and positively earth/nation shattering. But we poor
Indians just couldn’t cope up with this setback. Majority of the
people were not ready to weed out corruption or stop dealing in cash
or deal in real estate without cash.
Result - : The growth of this nation, Vibrancy in the real estate
market (a measure of national growth) and the common man
suffered. And suffered hard. Because no one knew how to use the
digital means and banking effectively. And this inherently smart and
corrupt nation wasn’t ready for this dramatic shift and that’s why the
entire demonetised currency found its way back into the system (as
people figured out ways around this), much to the surprise of the
Powers that Be.

Corruption is the engine of growth for a nation like India and ‘cash
economy’ the fuel in it. NDA tried to remove both in a dramatic
manner and displeased the nation. The preceding governments
allowed a certain free run to everyone across the board (individuals
and corporations) and the nation progressed. Cut this fuel supply and
everyone suffers.

It is anyone’s guess about the benefits of extolling the virtues of

corruption in a diverse, large and a disorganised country like India.

Jobs
This has become a contentious issue in the last few months. Some
leaked reports (authenticity unconfirmed) pegs India’s joblessness at
45 year high. Have a heart,… this is bound to happen. The Govt has
endeavoured to change the character of the nation overnight and
removed the grease (corruption and cash) that drives the engine.
How can anyone expect the nation to thrive? And perhaps that’s the
reason why most of the citizens of India are roaming around like
headless chickens and putting the NSSO in a spot because they
released a report that was a true reflection of the state of the
nation.

Alongwith the issue of jobs, everyone is talking of the rural distress.

We guys living in urban cities can neither see the distress nor feel it.
But speak to an Uber driver, or a ricksawwallah, or a vegetable
vendor – the guys are in trouble. No one is feeling prosperous or
happy. People love Mr. Modi, they say he is a man with a mission and
a clear intent but the distress hasn’t reduced. Approx 12000 farmers
commit suicide each year because of financial difficulties. For us
urbanites, it’s just a statistic. But what a shame that a nation with its
bedrock of progress and prosperity that was based on agrarian
economy is in shambles. The farmers that feed the nation are happy
to destroy the crop and give up farming because selling it to the
middle man is more expensive. Forget 12000 suicides – even a single
suicide by any farmer should be a national issue requiring attention
from the topmost echelons of politics and strategy (read niti aayog or
whatever).

I just read that the food inflation is at a 27 year low. Isnt that
counter intuitive – if the population and fuel prices are increasing and
area under cultivation is decreasing, such low inflation only means 2
things – either our supply chain management has become hyper
efficient or the farmer isn’t getting his due. 
All his alleged friends turned critics who have now denounced him
and
written
him off – I
personally
feel, have
neither
been his
friends,
nor ever
accompani
ed him to
the shoot
of the
famous
kingfisher
calendar
and maybe due to that have felt jealous enough to see him wrapped
by young damsels – perhaps often a third his age.

His nemesis was his blatant show of his hobbies even during the times
that were bad for the king of good times.

But lets get the record straight. We know that he owes some 1 billion
USD approx. 6000 to 7000 INR Crores to the banks, and the banks
are claiming some 1.3 Billion USD as recovery of dues including
interest. That he left the country in a hush was definitely wrong,
perhaps his own interest in General Knowledge was poor for he was a
small ignorable fish in the pecking order of defaulters even on the
day he fled India.

But what a shame on the fugazi of a system of political patronage in

India that a well meaning entrepreneur cannot fail and irrespective
of all past successes one failed business decision brings down the
edifices of success and remarkable history.

Just imagine that Indian banks are happily taking haircuts under the

aegis of the government and are made to own 51% of Jet airways and
I fail to understand why Jet wasn’t meted the same treatment as
Kingfisher.

If the promoters of top defaulting companies and siphoning agents of

this country can still continue to thrive and enjoy and use the
sloppiness of our legal system to wade their way through and still
lead luxurious lives – something in this nation isn’t right while the
financial systems and institutions of this nation are on their knees.

Essar has made a mockery of the system by trying to skittle the NCLT
process by throwing in financial googlies without any locus standi. If
they actually had the monies to clear off their debts, why did they
default in the first place. Shouldn’t just this statement be enough to
 punish
them for
their deeds
or
intentions?

And yet we
cant stop
vilifying
Mallya who
was driven
to elope
inspite of making infinite efforts to keep his airline afloat, to make
an effort after effort to persuade the government to change policies
to make airline business viable, to believe in his conviction to run a
world class airline and giving personal guarantees to raise debt for his
beliefs.

Different strokes for different folks – is what the broken political

value system of this country stands for. Crony Capitalism, Promoter
Banker nexus (a’la ICICIdeocon) must have shaved a percentage
points off our GDP.

If Mallaya is to be made a global spectacle of bringing a defaulter

back and hung out to dry, shouldn’t our government or the powers
that be, be putting atleast 5 dozen top defaulters behind bars and
setting an example immediately. Mallaya’s debt seems like a small
speck in the ocean of frauds and delinquencies in the Indian Banking
space.

And yet big defence contracts worth tens of billions of dollars are
being doled out to the very people or their companies who are not in
a position to pay a couple of million dollars to their vendors in other
businesses and are declaring bankruptcies. Isnt this a sham of
gargantuan proportion.

It would be
interesting
to watch
how the
top
indebted
companies
fare over
the next
decade as
it is quite
possible
that most of these are hiding behind the fine art of evergreening
their debt. Uday Kotak mentioned in his article of June 2018 that the
Manu also writes on the Huffington Post
Twitter @manurishiguptha

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Electric Vehicles – Awesome Potential & Dream

'BUT' Very Distant Reality

I wonder how many readers of this blog have ever used

Indian Railways but when I first saw the water mug
(used by Indians to clean their derrière) tied to chain
using a miniature lock – the contraption far heavier than
the mug itself, I wondered, A country where a petty
mug needs protection – what’s the future of our future
and who will protect it with which harness or security.

The answer is a big ‘NO-ONE’.

This little example is to set the scene for this piece and
hopelessness that persists because of a generally
degenerate attitude of us Indians.

The Government’s 2025 vision is a thing that dreams are

made of. Our economy is likely to be 5 Trillion USD, we
would have sent missions to various planets by then. And
some say, some influential politicians would already
have amassed large tracts of real estate on moon and
mars by that time, before anyone-else got a whiff.

Nothing shocks me anymore. Bad budget, Irresponsible

statements by politicians, the abject neglect of our
beautiful nation by its custodians – Nothing. I have set
my expectations so so low that I am generally happy and
satisfied with my environment but yes I do get surprised
more than often.

The recent reduction of taxation on Electric Vehicles (EV)

was one such moment recently.

Not only was it a dichotomy to the present state of

industry and the automobile sector, it was a reflection
NPAs of Indian banks could well be over 150 billion USD and we all
know that the real number could be much much higher.

Give it to the Mallaya - atleast for academic interest - that :

He brought order to Indian liquor industry and created the worlds

largest liquor company (by cases)
Took on some of the biggest global brands and had the audacity to
buy some top liquor brands globally.
It would be worthwhile to calculate the downstream taxes paid by
United Spirits and United Breweries over the last five decades.

Hubris makes people do wrong things at wrong times and Mallaya was
wrong to have called Enrique for his 60th  while his employees were
suffering for non-payment of salaries. He should have kept a low
profile while his troubles were surmounting and demonstrated
remorse and an intent to resolve.

And fear after hubris made him to run away for he was riding a tiger
from which, he couldn’t get off.

I think more than a few times Mallaya has offered to pay the entire
principle back to the banks if he is given time to resolve. On the one
hand the financial and administrative machinery of this nation is
taking haircuts on delinquent loans to the extent of 30-50 billion
dollars and on the other it is hesitant to allow a guy to make an
amend to the only mistake he made in his life - of founding an
airline.

For Mallaya – Come back, satiate the ego of the government by going
behind the bars for some time and take control of your businesses
and assets and genuinely say sorry to your ex-employees. You can still
bounce back as you are in a business that never suffers from an
economic cycle or a recession.

For Govt – Have a fair policy that’s similar for everyone, allow this
man to set his business straight, leave an impression that its perfectly
fine for an entrepreneur to fail and restart. By sending that message,
you would have set an example for an ocean of entrepreneurs, some
of who fail and want to succeed and keep trying.

Because say what you may – Mallaya was the  ‘king of good times
once upon a time’.

Manu also writes in the Huffington Post

Follow on twitter @manurishiguptha

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scrutiny. Some are repeating BG’s theories of quotational losses and
appearing in full page interviews.

The public opinion is rife as to why the regulator of markets (SEBI)

has introduced a volley of measures to simplify the mutual fund
industry by reclassification of schemes and defining the size of
companies on basis of market cap of companies and % of funds
invested in a category of companies.

What’s wrong in it. Actually nothing.

Mutual funds and fund managers had created an ocean of

incomprehensible financial products where schemes were being
launched such as special situations, arbitrage, emerging companies,
vultures picks, future stars etc etc. Just the names of the new
schemes were being used and repackaged to amass fortunes (read
expense ratios and bonuses).

Basically, all of this is a demonstration of the fund manager's alleged

belief and necessity at that point of time to launch  new schemes
using publicly available information based on specious research.

And the market regulator tried to streamline this so that the gullible
investor, reposing trust in the mutual fund – basically the fund
manager, sees some method in madness.

Indian markets are most volatile for the following reasons. The size
of speculation is 29 times the real market capitalization. For the
record some of the most sound and advanced and mature markets
such as the USA, Germany and the UK have just 3-5 times the size
of derivatives markets in comparison to the  cash market.

So I am in absolute awe of the regulator that all the recent froth in

the market was removed judiciously by introducing mechanisms such
as ASM and increasing the margin money requirements in the F&O
trades. And it surprises me that investors are acting and reacting
adversely because SEBI has introduced measures that will allow
overheated and irrational markets to cool off and that will reduce the
sheer gambling in the garb of investing.

I know of 2 middle class retired uncles who leave home every day
with 10k of their pension money, leverage and take positions worth 8-
10 times, get wiped out with just a 5-7% volatility in the prices and
come hope sheepishly only to restart the next day to recover their
losses. Derivatives are definitely weapons of financial destruction as
they have no underlying asset/value and are merely an arbitrage
between one person’s fear and another’s greed

I am shocked when people ask me questions – do you play markets.

PLAY? I ask – is it a sport?
Statistically speaking, If you simply play an odd even on a roulette in
a casino you have a better chance of making money than investing in
the markets.

So, in this maze of multiple schemes, thousands of options, there is

just one reform that SEBI needs to implement that could be a game
changer in the interest of a common small investor.

That reform should be called the ‘Skin In The Game’ reform.

I have a 10-point recommendation for the entire MF and PMS industry

where creative marketing and false promises disclaimed by reams of
fine print are called out.

No advisor who vomits advice on TV or print should be allowed

to give a disclaimer.
Irrespective of the size of the AUM, every fund should have a
max cap of expense ratio not as a % of size but as a pure
number. Why should a fund with AUM of 2 billion dollars or
more charge over 3-3.5% in fees that amounts to close to 60
million dollars. After all incremental effort required to
manage a larger or a much larger fund is just the salaries of a
few more research analysts.
Distribution fees offered by the fund houses should be reduced
to less that 30-40 basis points and distributors mustn’t be
offered perpetual commission on the funds brought in.
All fund houses must be forced to have a similar fee structure
for distribution and fund management fees (expense ratio) to
disincentivise mis-selling.
Why should an investor pay 3% for the first 7% ROI when Indian
treasuries or Bank deposits are guaranteeing the same with
zero risk. Fund houses and managers should get no or
negligible fees and salaries respectively for generating returns
up to the yields on Govt Bonds.
The fund manager should swear under judicial oath that they
and their close relatives as defined by the regulator for the
purpose of gifting wealth would only invest in the fund
managed by self and except for real estate and liquidity as
desired by any individual, all investments in financial
instruments will only be that fund that’s managed by the
family member.

Some advocates of democracy might start jumping and call this

preposterous. But how else do we curb counter actions by people
acting in concert against the interest of small saver.

Yes, it’s a tough proposal but then if a fund manager wants to earn
hefty bonuses, he must figure   this out and have a complete skin in
the game.

Fund managers only get a fractional % of their salaries if they

return up to or less than the return offered by Govt treasuries.
 21 COMMENTS:

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Why a NDA loss might actually be good for the

Stock Markets, Investors and India

Markets seem to have a mind of their own and have historically

demonstrated that they discount the future far ahead in their present
values. Perhaps that explains why Foreign Institutional Investors have
pumped in close to 10 Billion USD in 2019 alone whereas they
withdrew almost the same in 2018 from Indian markets and barely
invested a net total of 2.6 Billion USD in 3 years (2015 2016 and
2017).

Markets are almost certain that Mr. Modi will come back with a
resounding victory and obviously for anyone vaguely connected to the
markets, one cannot fathom a NDA loss.

But hang
on! History
is a great
teacher
and I make
my
argument
that an
NDA loss
might
actually be
good for
sharp
investors
and for the
economy.
When the
obvious doesn’t happen, markets perform better. Lemme explain..

Stock Markets
The stage had been set in 2004 for a Vajpayee comeback. India was
shining and just to prove this point, it is believed that close to 500 Cr
(approx. 109 Mill USD at that time) was spent by NDA in 2004 and on
The final Take :
If the obvious happens, which is the NDA win, the markets and the
economy isn’t going anywhere – for Indian stock markets are trading
at 28-30 times their earnings that make the markets one of the most
expensive in the world. If at all - these will come crashing down
unexpectedly and against everyone’s wishes when the euphoria is
over.

But if a majority of Indians doubt the promise of ache din, and begin
to question the 15 lacs that were to come to our accounts, and the
regime actually changes, the storm in the tea cup might actually
bode well for all of us.

Ye Indians! – figure our where your bets are.

Manu also writes in the Huffington post

Earlier articles that created a flutter…..

In Defence Of Vijay Mallaya – The King of Good Times

‘Skin in the Game Reforms’ – Game changer in the Asset Management

World

The Invaluable role of Chief Business Obstructers in the modern

corporate world

Follow Manu on Twitter

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In Defense of Vijay Mallaya - The King Of Good

Times

Disclaimer : I only know of Vijay Mallaya thru information available

in public domain. I feel sorry for the few of his employees (who had
to take their lives in distress) and their families.

I have come across more than a few people who used to tell me with
an accent,  pseudo enough, that they only flew kingfisher and took
pride in it. The parties that Mallaya threw and the host that he was,
made national news and was hot topic among the socialites during
the man’s good times.
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'Skin in the Game' Reform: A Game Changer in

the MF and Wealth Management World to Save
the Retail Investor

Indian benchmark indices are at a lifetime high and hundreds of

stocks that have been the market darlings are at their yearly and
some 2-yearly lows. This fall has been precipitated in a matter of last
-mere 5 months.

Obviously most of the fund managers (mutual funds, private wealth,

PMS schemes) are finding corners to hide where they can find respite
and concoct some solid theories and reasons for wealth destruction
last seen only in 2008-2009 – after all these were the very same guys
on CNBC, just very recently, who were chuffed at their stellar
performance and recommending shares ala Vakrangee Manpasand and
PC – forgetting that it’s a unusual proxigean spring tide. And as we
have all heard before --  that all s*^@# rises in a high tide.

Some fund
managers
like Porinju
(having
faced
perhaps
the
maximum
erosion in
their
recommen
ded
portfolios)
have been
graceful
enough to
publicly
accept the same and have learnt their lessons. I have great respect
for people who have a clear intent and are quick to concede
defeat when defeated and are quick to self-deprecate and crack a
joke on themselves. Hats off Porinju. Your recent confessions hold
you in good stead with small yet well informed investors like me.

Some relatively bigger names in money management business who

have destroyed a much larger share of the savers wealth are finding
ways to repackage some established theories  of legends such as
Benjamin Graham (BG) and Buffett (WB) to avoid backlash and
 Infinite bonuses make fund managers take risks and positions
that neither the gullible and ill-informed investor nor the
regulator approves. Every fund manager must have a cap of a
maximum performance bonus irrespective of a stellar return or
a flash in the pan performance in any particular year.
Is there any exit load on bank deposits? NO. Why should fund
houses charge any exit load. An investor wont exit if the fund
is performing and if the fund isn’t, and an investor wants to
book losses and exit, why should the fund house be allowed to
screw the investor twice over. Exit fees should be scrapped.

And lastly the law around this should be so robust and penalties so
humongous that no one can pull off a Houdini on investors.

Rajat Gupta – the poster boy of Indian diaspora was pulled up badly
and almost destroyed by the US law for one small mistake of his. The
readers of this blog all know in their heart of hearts that almost
every promoter and every insider of a listed company in India
indulges and misuses the insider info for personal benefits. Would
anyone accept that ever anywhere else in developed economies? And
would Indian law be robust enough, ever, to instil the fear of God??

Only God knows……...

manu also writes in The Huffington Post

LABELS: FINANCIAL BUBBLE, INDIAN STOCK MARKETS, INVESTMENTS,

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