Does Corporate India too need one Anna Hazare?

Aug 26, 2011

In this issue:
» Warren Buffett hits a homerun with Bank of America
» Indian investors can now bet on US stock indices
» US interest rate policy may fuel inflation in India
» India, China corner lion's share of PE investments in emerging markets
» ...and more!

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It is no shocking news that a recent report rated India as one of the most corrupt countries in the world. The sheer number and size of scams witnessed in the last couple of years have shaken the faith of Indian people in the establishment. In just the same way, overseas investors too are skeptical of Corporate India. Given the fact that the corporate landscape is still mired with loads of corruption, they view India as a high risk-high return market.

So as not to lose their money with fraudulent and shady promoter, foreign investors and private equity funds have further fortified their due diligence procedures. They are now not just looking at financial and legal matters alone. They are doing thorough background checks on the companies and the promoters. They popular term for it is 'corporate espionage'. In simple words, foreign investors are now hiring surveillance agencies to carry out the due diligence on company promoters. Spies are assigned the task of doing the 'market due diligence' to check the integrity of promoters. They secretly investigate their lifestyle for any signs of deceit; seek information from competitors, vendors and so on.

Such kind of due diligence has gained huge momentum in recent times. Investors are now being very cautious even during the early stages of investment. According to certain espionage experts, such kind of spying is most prevalent in vulnerable sectors like infrastructure where fraudulent practices are rampant.

Another reason for this kind of caution is the fact that India has very few companies that have a long and tested legacy. In fact, in a recent survey that we conducted about the most trustworthy corporate house in India, the Tata Group emerged the unanimous winner.

India is witnessing a sea change in the way its people are looking at corruption. In recent times, the fight of the common people against corruption has assumed epic proportions. Their collective frustrations have found a powerful voice by the name of Anna Hazare. While Team Anna fights for a stronger Lokpal Bill, Corporate India too urgently needs to revamp its tarnished image.

Do you think Corporate India also needs one Anna Hazare? Share your comments with us or post your views our Facebook page.

 Chart of the day
Today's chart of the day shows the growth in capital expenditure by the non-financial corporate sector. The rate at which Indian corporates have added gross fixed assets in the past few years has witnessed a steady rise. In fact, growth rate of capex peaked in 2008-09, the period that coincided with the global financial crisis. However, the same has slowed down in recent times. The slowdown in economic growth that we are witnessing now was due much earlier. But as a result of easy credit and the fiscal stimulus by the government, corporates kept up their expansion spree. Now that growth has slowed and interest rates are high, the businesses have slowed down on their capex as well. Hence, we're likely to witness a period of slower growth which is nothing but a part of the business cycle.

Data source: Mint Money

If you are looking to invest for a one year period, the safest investment in India will give you returns in the region of 8%. Now, imagine another investment promising you a one year return of a whopping 480% and that too nearly risk free. Sounds ludicrous, isn't it? However, when it comes to investing, nothing is impossible for a certain Mr Warren Buffett. At a time when one year US Government bond is yielding a paltry 0.1%, Buffett has managed to sew up a deal that will pay him 60 times more in interest than what the Government is offering! Buffett reached this agreement with Bank of America Corporation (BofA), one of the world's largest financial institutions. As per the deal, BofA will sell 50,000 shares of cumulative perpetual preferred stock in a private offering and having a dividend of 6% per annum. This is not all; Berkshire Hathaway will also receive warrants to purchase 700 m shares of the company at a certain exercise price. This deal is eerily similar to the ones Buffett signed into with companies like GE and Goldman Sachs at the peak of the subprime crisis. The only risk here we believe is of BofA running into financial problems and going bankrupt. However, it looks highly unlikely that the Government will let something like this happen. Thus, the Oracle of Omaha seems to have hit another one out of the park after waiting for that perfect ball.

The US markets have fallen quite a bit in recent times. This would get many investors excited about investing in them. So why should the opportunity not be available to Indian investors as well? A leading brokerage had come up with an ETF (Exchange Traded Fund) which was based on the Dow Jones Index. Not to be left behind, the National Stock Exchange (NSE) has decided to come up with another way in which Indian investors can look at the US indices. It has decided to introduce derivative contracts on Standard & Poor's (S&P's) 500 and Dow Jones Industrial Average (DJIA) indices. Through these contracts, the investors do have an option to trade in the US indices. Though these would be rupee based contracts, their values would be decided on the basis of the underlying indices. While this is more of a trading opportunity rather an investing opportunity, it is nevertheless an opportunity for the Indian investors to participate in the US markets.

Low interest rates are likely to keep the RBI on its toes for quite some more time to come. The US Fed has so far shown no remorse over the impact of cheap money flooded into emerging markets. The steep rise in commodity prices has brought inflation levels in emerging economies to a new 'normal'. However, the stubbornness to keep interest rates near zero until 2013 does away with any possibility of commodity prices falling in the near term. Further, another round of quantitative easing (QE3) can only make matters worse. The RBI, on the other hand, is determined to fight the inflation monster. More than 10 increases in interest rates in the last 14 months have barely started cooling price rises. The impact on economic growth rates has been far more brutal. India Inc. is already complaining about the rates being prohibitive to sustain growth rates. Companies that are already leveraged could come on the brink of debt default if the interest rates get steeper. With that, one can only hope that better sense prevails on the US central bank on managing its own precarious debt position a little more sensibly. Else, the RBI will have a tough time managing its affairs.

Despite various concerns, emerging markets have so far managed to grow at a healthy pace fueling various investments into these countries. And private equity funds have not been far behind either. But which emerging countries have seen a large chunk of private equity investments? The answer, not surprisingly, is China and India, who have cornered 68% of the total invested value according to a study by the Emerging Markets Private Equity Association. In the first six months of this year, private equity investments in emerging market economies totaled a little over US$ 14 bn with US$ 5.8 bn going into China and US$ 3.8 bn into India. Not just that, India and China even account for 54% of the total number of completed PE transactions during the same period.

Of course, both these countries in recent times have been facing headwinds in the form of high inflation and interest rates which is expected to slow down Gross Domestic Product (GDP) growth. But these are more medium term concerns and despite them, emerging countries have still been logging in better growth rates than their developed peers. What is more, the former are expected to have the edge in the longer term as well. So it comes as no surprise that private equity funds would want a share of the emerging market pie.

In the meanwhile, Indian stock markets have been witnessing a heavy sell-off despite having opened the day in the green. At the time of writing, the benchmark BSE Sensex was down by 254 points (1.6%). Realty, power and metal stocks were dragging the markets down while IT stocks were trading flat. All Asian stock markets closed weak except South Korea (up 0.8%), Taiwan (up 0.5%) and Japan (up 0.3%). European markets, too, have opened in the red.

 Today's investing mantra
"I'm only rich because I know when I'm wrong...I basically have survived by recognizing my mistakes." -George Soros

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25 Responses to "Does Corporate India too need one Anna Hazare?"

Suresha Aithal

Sep 4, 2011

yes, they are are the main bribers of the government corruption.It is not so easy job.When we go for our work to govt offices we want our work to be done first there we offer bribe even he doesn't ask.We Cant wait for a day or we bribe. if we are in fault we offer bribe. When we are on the wrong side of the road,parked our vehicle at no parking area if caught by police man we offer bribe of Rs 50 for a fine of Rs 100/- So both are corrupt.This is one example there are hundreds thousands.


rajesh kumar

Sep 4, 2011

i have read ur views about corruption as well as your views about corruption in corporate india. reading this in an investment letter prompted me to remember the interview on corruption that i read in a US investment letter that i subscribe to. i do not know if i can send it bu copying it on this page, but maybe u can send me an e mail address where i can send it as an attachment. it really is worth reading and propagating, at least to make us all aware! so let me give it a try to copy and send it. COULD NOT DO IT! MAYBE U CAN SEND ME AN E MAIL ADDRESS WHERE I CAN SEND IT AS AN ATTACHMENT.


D G Keni

Sep 3, 2011

"Does Corporate India too need one Anna Hazare?" In my view TATA Group is one Anna Hazare in Indian Corporate World. However for many years no one joined with him till today because they do not have any business ethics with human face.



Aug 31, 2011

Absolutely. Corporates in India have been a corrupt lot for several decades. Each city in needs a Corporate Lok Pal/ Lok Ayukta.

I would also recommend once a person is found guilty, all the wealth the person has illegally accumulated over the years as well as his 'personal' wealth and assets (including property) be impounded and confiscated and the non-cash assets be auctioned off to the highest bidder, the proceeds be used for the upliftment of society, better roads & infrastructure, education, health, building of affordable hospitals for the common man.



satvinder kaur,ph.d economics

Aug 30, 2011

no doubt, Hazare has raised a good issue against corruption, bt in my point of view the issue raised by baba ramdev was so precious for the development of pro-poor in India, which is a great concern nowdays.i am also strange to think that as the roots of corruption are existing in corporate/capitalistic sector, than why Anna remains silent on this. As far as the bill is concerned mere the passing of a bill and think there is end of corruption is a foolish thing, first the implementation should not be poor, as land reform case in India and secondly the one who want to do bad, he can find the alternative, as we usually say that where there is a will there is a way.this will can not finished upto there is existence of capitaism, so there should be social transformation from Semi feudalism/capitalism to socialism.


Joshua Kurien C

Aug 29, 2011

The Liberalisation and globalisation has opened up tremendous opportunities for commiting fraud on the public by corporates. India badly needs a replication of the struggle by civil society headed by Anna hazare



Aug 28, 2011

Sure we do and at the earliest



Aug 28, 2011

It is utmost important in Indian Big corporate houses, internal corruption is at peak, lot of profits are eroded by the senior executives, if government or private investigating agencies investigate wealth of senior executives of Big corporate houses like Tata, Reliance, etc you will find shocking results of the wealth of these executives, actually IT Dept sh be effective.


Naresh Jain

Aug 27, 2011

Ofcourse even corporate India needs a Anna Hazare too and that too immediately.I think the corporate (without exception) is responsible for corruption in high places. Corporate's have a social responsibilty too and they would do a world of good for the country if they stop corruption imediately. Tata's according to the survey are not corrupt,but its not so.May be Ratan Tata is not corrupt but he cant manage all his units and departments and the management indulge in all sorts of corruption. But I may concede that they 'Best among The worst".Eradicating of corruption is as necessary in corporate's as it is in the other private and public departments.
Naresh Jain



Aug 27, 2011

Here we think of the lesser devil than the saints. The laws in India are so drafted and passed that, I challenge anyone who can really comply with it and live with a free concious saying that I have fulfilled my obligations as a citizen of India. We have too many laws and too many agencies but each conflict with each other. Simple example is the recent bomb blast in Mumbai. Too many intelligence agencies and what were they doing and we do not know what is happening in this front as now the press and popular sentiment is janlokpal bill. On the televisions it is interesting to see the way the congress and bjp fighting. Since I come TN and water is a scarce item and one should see people fight when collecting water, that is due desperation and the same mood. Shame on India when we take pride on the most working democracy and biggest democratic country. Will corporates allow a Anna Hazare like person to come to pull the rugs under their feet??? They do not have to look for popular sentiments. Just look around and see the corporates exploiting the natural resources as if with this generation the whole world is going to end.

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