|»5 Minute Wrap Up by Equitymaster|
On This Day - 4 APRIL 2012
Will hedge funds win where minority investors lost?
In this issue:
----------------------- "An excellent analysis and narration on the present situation" -----------------------
The latest case of the government arm twisting Coal India to sacrifice business interests for national interest is not a lone example. Several PSUs have had complete disregard of shareholder interest to suit the government's political motives. Private sector entities on the other hand have taken decisions to suit the promoters' greed or ego. However, the recent instances of foreign hedge funds opposing board decisions come as a welcome move. Not just Coal India, but also Zenith Infotech and drug maker Wockhardt have been the subject of hedge fund activism. That the foreign hedge funds bring with them some political clout adds to the pressure on company managements. Further their ability to influence overall FII investments in the country acts as an important bait. Widespread negativity amongst foreign investors, especially Foreign Institutional Investors (FIIs) could cause a huge pull back in Indian stock markets. This is something the government and company managements are well aware of.
Hence it seems that the fate of minority investors in India is now in the hands of handful hedge funds. The latter's success in teaching some lessons in corporate governance to the defaulters in India Inc could go a long way. If nothing, corporate India will at least not ignore the opinion of minority shareholders. Prudent decision making could also help more Indian companies become long term wealth creators. The RBI has succeeded in maintaining high levels of compliance amongst banks. Similarly, the Securities and Exchange Board of India (SEBI) would do well in supporting the cause of small investors. This could not just enhance investor faith but also improve investor participation in stock markets.
Between 1927 and 1946, his fund averaged 12% per year. An outstanding performance considering how bad the economic situation was back then. This even led Keynes to come out fully in support of value investing i.e. buying dollar for something like 75 cents and having the patience to ride out the bad days. Thus, if even the best macroeconomic mind out there found it hard to invest based on business cycles, it is better to stick to value investing we believe.
Two companies Satyam Auto and Rockman Industries, which supply auto parts to Hero Motocorp, have been at the receiving end as workers in their factories have demanded better wages. Interestingly, while at Maruti's plant, contract workers had staged protests, this time the permanent workers at the above mentioned two companies have gone on strike. The core point of dispute seems to be the minimum wage being doled out. Companies do not see any reason why they should pay more than the minimum wage fixed by the government. Workers in the meanwhile are disgruntled on seeing other workers from other regions earn more. What is more, data on industrial disputes do not match the ground reality. Figures show that the number of disputes has come down. However, the state administration agrees relations between employers and employees are not cordial. It is a tricky issue but one for which a good solution is needed if Manesar like scenarios are not to erupt in the future.
The global average for the index stood at 113. Germany and China occupied the third and fourth position with 132 and 130 points, respectively. Japan, with 82 points, is still recuperating from last year's disasters.
All this trouble also affected the banking sector. The industry has been in rough waters over the past year. As the economy has hit the brakes, banks credit growth slowed to 16%. Gross non-performing assets are expected to rise to 3-3.1% in FY12. Total bad loans crossed Rs 1 trillion mark at the end of December 2011. Cases of restructuring have also increased. The big question now is whether the RBI will soon go ahead and cut rates in light of a very obvious slowdown.
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