Tuesday, August 30, 2011

Beyond Jan Lokpal..

Anna Hazare has brought corruption in to the limelight. For those who do not follow the details, Anna’s present ‘fight’ is only against those who are found guilty or corruption, from the CENTRAL government and the elected representatives. And believe me, this is not the largest source of corruption in India. The Jan Lokpal as proposed by Anna Hazare, is still some time away from seeing the light of day. Whether it would do so in the form as desired by Anna, is a highly debatable issue. There is too much opposition from the elected representatives, to make it effective.
The biggest beneficiaries of corruption in India have been the businessmen. Wherever there is political dispensation to get licenses and permits, the graft is tremendous. Some are central government level and some are state government level.
Everyone in government position extracts his ‘rent’. So much so that even public sector employees across the board are party to this. It is generally a question of ‘degree’ of corruption and never one of ‘principle’. Of course, there would be some honest people, but they are the exceptions who prove the rule.
The next logical move should be the one to introduce the “Lokayukta” in all the states. Karnataka is one strong reason why this bill will be resisted tooth and nail by every state government politician. Already, tamilnadu politicians are talking about the Lokayukta amounting to ‘interference’ in authority of the ‘elected’ representative of the hapless ‘people’. And we have state government politicians who have made so much money that they are the envy of the central government cadre.
Then we come to the so called ‘petty’ corruption which impacts our daily lives. This is a cancer that has affected India and can never be removed, Anna or no Anna. This is the bribes that are demanded by government employees for doing their work. Whether it is a ration card issuance or a passport or a driving license, corruption is the ‘speed’ money that we will continue to pay. The processes are so designed that most people will give up before they start and pay a bribe to get things ‘done’.
If we think that the Anna campaign means something for us, think again.
What is needed is changes in law that will make corruption punishable. And in India, the rich get away with anything. Power and position ensure preferential treatment. A minister is treated with kid gloves. He might have defalcated zillions of rupees. A pickpocket will be subjected to third degree. Unless a minimum punishment, of say, twenty years of Rigorous Imprisonment, combined with confiscation of all wealth of the person and his immediate family, is prescribed, corruption will flourish in India. Shed no tears. The present Indian entrepreneur is also happy with paying the bribes. He evades taxes, duties and has multiple overseas assets that he has stolen from the shareholders. He needs the system to be corrupt so that he can make progress. In a country where there is no private capital and a fetish for control, corruption is the grease that moves the wheel of progress.
Bribe on...

Friday, August 19, 2011

Razor's Edge- To buy or not to buy


A piece on the markets.

Monday, August 1, 2011

Manmohan Singh- A parallax view

All of us love to trash Manmohan Singh. Weakest PM, gutless etc.,

One thing strikes me. All of us seem to want him out. We have not thought about the subsequent possibilities. Then maybe we will get Rahul G or Pranab. One is a family member and the other a family loyalist.
Today, Manmohan Singh appears to be quiet and infirm. Think. He is letting the Supreme Court function without fear or favour and it is possible that this wave of judidicial activism could clean up a lot of things. If either Rahul or Pranab were out there, would they have let this go on? Would they not have bamboozled their way through and let corruption continue unabated?
Let us give (to borrow a cricketing phrase)'the benefit of doubt' to Manmohan Singh. Perhaps, in today's muddied water, he is the one paddling beneath the waters.

Warren Buffett buying Indian companies??

( I had written this piece more than a year ago, for a personal finance magazine)

As far as I am concerned, the Warren Buffet Graham Dodd School of investment is a complete education in stock picking. Having seen the Indian markets over the last few years, the one thought that comes to mind is that if WB were operating in the Indian markets today, he would perhaps find it difficult to find companies. However, if you take a cycle of twenty years, he would have found many opportunities to buy. WB is associated with ‘value’ investing. India is a ‘growth’ story. ‘Growth’ means buying in at prices that a ‘value’ investor may not buy.
If I look at WB/GD for inspiration, the key takeaway is the relevance of Return on Equity in conjunction with the ‘Margin of Safety’. If one uses these two financial measures, today’s markets are unlikely to throw up any investment worthy candidates. It is simply because our markets are today in an orbit that is being justified by the growth potential as well as the fact that when most of the world comprises of blind people, the one-eyed are looked upon with awe.
If I look at some of the key qualitative attributes that WB/GD has listed out as pre-requisites for being included in the short list, the following things stand out:
i) Find companies that have strong entry barriers and strengths that enable predictability of earnings. One of the examples in the WB domain is Coca Cola. In India, I have not come across an Indian company that has this attribute. It is only some of the multinationals operating in India that has this attribute. Clearly, India is not a business pioneer even in its homeland, forget globally. Companies like a L&T / HDFC come close, but one will have to search hard to find many more;
ii) Management quality: Here again, most Indian companies suffer due to management being a family affair. Father passes it to son and so on. The best person for the job is not chosen. So, here again, the list of Indian companies is rather small.;
iii) Forever companies: WB says that he would like to stay invested in a company forever. Here most Indian companies fail the test. Where are the Century’s / Nirlons’/ Mafatlals/Singhanias of the yesteryears? They were the blue chips then. Again, one has to stay content with an HDFC or most of the MNC’s who will be there a hundred years from today. You cannot bet on the longevity of an Indian company or management or family. Their capacity to surprise is immense.
Apart from the key differences, the other issue is a WB approach may simply fail because we have two classes of shareholders, whose returns are different. The promoter shareholder gets his returns from many sources whereas the non promoter shareholder gets incidental benefits. Corporate governance and capital market regulations notwithstanding, the promoter only lets you see what he wants to let you see.
SO, to gain from a WB approach, we need to have the ability to understand the management and take a call on what the odds are of riding his coat tails. The other most important thing, to my mind, is that we have to learn when to sell. The volatility in our markets (illiquid and shallow by characteristic) gives great opportunities. I like to make a shortlist of companies that I like and put against them, prices that I am comfortable paying. And then wait. Surely, in a person’s investment life span, anything from three to five opportunities will come. And the returns will be great. Much better than market returns if I may say so. One must not have the compulsion to invest everything in one go, like a fund manager.