181 Independent Directors Opt Out - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

181 Independent Directors Opt Out 

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In this issue:
» Directors' resignations raise eyebrows
» Are you applying to this IPO?
» Buffett thinks 'it' to be the most valuable asset
» Central bankers hope of recovery
» ...and more!

The scale of wrong doing at Satyam seems to have given accountability another meaning. Whether it is for this reason or not, independent directors seem to be rather conscious of their position. As per a leading business daily, the database of directors at Bombay Stock Exchange shows that nearly 181 independent directors have resigned from company boards in the last three months.

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In fact, while there is no suggestion of any financial wrongdoing by these companies, the surge in resignations has prompted the Institute of Chartered Accountants (ICAI) to take a closer look at firms' financial statements. It is also of relevance to note that while independent directors themselves are attaching more responsibility and accountability to their positions, even governing bodies are keeping a close watch on them.

Some hard lessons well learnt!

Given the huge expectations that have built up for its official launch, the Nano is expected to rake in the moolah for Tata Motors much before it rolls out of the showrooms. We say this because in order to manage genuine applications for the Rs 1-lakh (base price) car, the company is planning to charge Rs 300 per application. However, the money will be refunded if the application is rejected for whatever reason(s). As reported by Business Standard, bookings for the car are expected to start by the last week of this month. The newspaper has quoted a source at a public sector bank as saying, "All the forms and the collected money will be transferred to SBI, where they will be processed, and loans will be given through various banks within 90 days."

A rough calculation - if Tata Motors can sell around 60,000 Nano on launch, it can pocket Rs 18 m just as application money...or an equivalent of around 100 Nanos of a price of Rs 1-lakh each!

Anyways, asking for application money and refunding the same if the application is rejected is a part of the process of a company's IPO (initial public offering). But isn't Nano seen as a way to take Tata Motors out of the crisis situation it has fallen into. And over that, the car has been ideated and created for the Indian public and is being offered for the first time.

So, are you applying to the IPO...of the Nano?

Small it may be in terms of size and the price tag, but it does pack quite a punch when it comes to the sheer number of new ideas and concepts that have gone into its manufacturing. And given what is at stake, it makes complete sense that these ideas and concepts are protected from cheap imitation. We are talking again of the Nano, whose parent Tata Motors has applied for patent protection for over 37 inventions and innovations that have been made during the design and the development of the car.

Not only this, as per a leading daily, the company is also considering filing IPRs (intellectual property rights) on Nano in overseas locations at an appropriate time. Interestingly, most of the patent applications filed before 2007 have already been granted. A proud moment indeed for India as this is perhaps the first example of a fully home grown automaker filing so many patents for a single product. Way to go Nano!

Moving on from 'small car' to 'big talk', CNBC, the US version at least has come under fire for letting emotions get the better of it. As per the Time magazine, the channel is alternating between 'desperate cheerleading' and 'reckless ranting'. Interviewers cheerlead for a recovery by enquiring about market bottoms and stock picks. The magazine adds, "CNBC's reaction is colored by its stressed-out day trader's focus on the short term...When CNBC considers the economy, it means Wall Street's numbers that day, that hour, that minute. CNBC may pay lip service to the long term, but it has the time horizon of a fruit fly."

In his recent interview with CNBC, Buffett had an interesting point to make. He said that the most valuable asset that an individual has during times of economic downturn is his/her own abilities. To think of it, how true this statement is. At times as these, every other asset is subject to correction. But the value of this asset (individual ability) is only set to improve.

Poor job scenario coerces employees into working hard for retaining their current vocation. Students/job seekers strive harder to get themselves placed. Budgets at offices and homes get more efficiently utilised. Banks lend capital sparingly. Companies use them with even more frugality. Learning these virtues is a must for every generation. Not everything is bad about difficult times.

Well, in these difficult times, when jobs are being axed and salaries are being slashed, many are probably contemplating pursuing further studies. The rationale being that when the economy does perk up, one is equipped with the requisite skills to secure better jobs. Amongst the plethora of degrees, doing an MBA would certainly be a popular choice. But is the MBA degree as hallowed as it is perceived to be?

Some critics of the course say that the B-schools are too detached from real world issues, some teach students to come out with hasty solutions to complex problems and more importantly, many are more focused on maximising shareholder value putting ethics and social considerations on the backburner. While we are not sure whether laying the entire blame of the financial crisis on management education is apt, but yes, the MBA degree does have its share of shortcomings. It is now up to the educators to give this issue a serious thought and address the problems.

Ben Bernanke, the Chairman of the US central bank, believes that economic recovery will begin next year. In an interview with CBS, he said, "We'll see the recession coming to an end probably this year. We'll see recovery beginning next year. And it will pick up steam over time."

He added, "I just have every confidence that as we get through this crisis, that our economy will begin to grow again, and it will remain the most powerful and dynamic economy in the world." However, given the way the American fabric - of a capitalistic and consumption driven society - has been tattered to pieces, coming back to sanity will in itself be an arduous task, forget reaching back the pinnacle as Bernanke would have us believe.

As Mr. Bernanke hopes, so does our own Dr. Subbarao, the Governor of the Reserve Bank of India, who believes that India will be faster to recover than the rest of the world once a global revival begins. As quoted in the Economic Times, he said, "India can be a growth engine. Not that India can recover ahead of the world. But when recovery starts, India's recovery is going to be sharp and rapid."

The US stock markets have been defying gravity of late. They have shot up 12% in the past four trading sessions alone, putting enough doubts in the mind of the people that the worst may well and truly be over. Seizing the moment, the International Herald Tribune (IHT), one of the leading dailies in the US is running a story that focuses on this very question - Is the worst over for the markets? And if it isn't then what are the signs that would indicate that a bottom has indeed arrived?

Some experts are of the opinion that the problem started with the banking system and hence, until the banks start functioning normally, US economy as well as the stock markets could continue to go downhill. Still others are of the opinion that until houses in the US once again start turning affordable, a bottom may not be called. There are still others who wish to look at the US consumption patterns for calling a bottom.

Opinions indeed are aplenty but all of them would nod their head in agreement to the famous economist John K Galbraith's acute observation, "The only function of economic forecasting is to make astrology look respectable."

Anyways, Indian markets closed strong today, led by gains in realty and energy stocks. The BSE-Sensex ended the day almost 190 points up (2.1%). It was accompanied by other key Asian indices as well, given that stock in Hong Kong (up 3.6%) and Japan (1.8%) also closed in the positive. European markets have also opened strong.

04:54  Today's investing mantra
"I paraphrase Lord Rothschild: 'The time to buy is when there's blood on the streets'." - David Dreman
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