Tatas voted most trustworthy yet again - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Tatas voted most trustworthy yet again 

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In this issue:
» Is RBI mediocre?
» Coal price pooling will help power cos
» Govt targets skill building to reduce youth unemployment
» Despite margin impact, IT cos retaining 'benched' employees
» ...and more!

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00:00  Chart of the day
Time and again investors are reminded of one major rule of investing. And that is to look at the management quality. While looking at a company as a prospective investment the quality of the management is extremely important. Management is the face of the company. It is the hand that holds the rudder of the company's ship. And if they go wrong the ship sinks or gets caught in troubled waters. These facts become even more glaring when a corporate scandal or scam rears its ugly head. It is a stark reminder of why management quality is important.

In recent times there have been quite a few corporate scams that were written about by the newspapers. The Satyam scandal and its scars are still fresh in the minds of most investors. The more recent alleged scam involving the former managing director and chief operating officer of Reebok India was another rude reminder of why it is necessary to have someone you can trust heading the company.

In light of this, we at Equitymaster have been conducting an annual poll to get a perspective on which companies enjoy the trust of our readers. We recently conducted and concluded our 2012 poll and yet again the results were very interesting.

The corporate group, which the investors think is the most trustworthy, is none other than the Tata Group. More than 50% of the participants showed their confidence in the Tata Group. The second runner up was the HDFC group but it trailed far behind in terms of share of votes, which was in the region of only 10%. Close on its heels was IT major Infosys Ltd.

The result for the top position is similar to that of the poll conducted last year when the investors had voted in favour of the Tata Group. But the surprise here is that Infosys has slipped a position. After having enjoyed the second position in our previous polls, the company has slipped to the third position this year. It had to yield its position to the HDFC group. A major reason for this could be the reshuffle at the head of the IT Company. It is still very early to comment on the changed management as they still need to prove themselves.

Nevertheless the poll displays one thing. And that is that investors are becoming increasingly cautious when it comes to investing. They are increasingly realizing the importance of a good management. And they are not content with just big names. Investors are giving equal and more importance to the management's proven track record before giving them any credit. And that is exactly the way it should be. Because that is how valuations pan out too. Companies with high quality management with a strong track record get better valuations as compared to those who don't. Indian companies can no longer take investors for granted. They need to focus on good corporate governance practices if they want to command strong valuations going forward.

Source: Equitymaster Poll Survey Results

You can view the results from the poll conducted on the most trustworthy companies in India by clicking here.

Further, why don't you also share your views and comments on the results of this poll or post your views on our Facebook page / Google+ page.

We are wrong in praising RBI because it is only a mediocre firm, opined a column on Firstpost.com. This statement really got us interested in reading the rest of the article. More so because only a few days back, we had written about how underappreciated the Indian central bank really is. Thus, someone calling the same institution average did come as a gentle shock to us. The article then went on to mention the misdeeds of the erstwhile Governor Dr Y V Reddy. It argues that Reddy gave open invitation to inflation by expanding the monetary base by more than 20%. And then when the same money caused inflation, he chose to look the other way and condemned the price rise himself. The article also held him responsible for cutting the already low CRR still lower, thus causing further inflation. It will be hard not to agree with any of these allegations against the Reserve Bank of India (RBI), especially Dr Reddy. But to look only at his missteps and not his achievements does give us an impression that the author had already made up his mind on Dr Reddy and then came up with his justifications. We indeed agree that RBI could have been even more vigilant. However, to put the entire blame on the central bank would be wrong. Messrs Bernanke and company and also the Government of India are equally to blame. Given the limitations that the RBI has to work with, it did do a pretty decent job we believe. The people criticising the RBI would be well advised to look at 'what would have been' rather than 'what is'.

It is not just gold prices that have been of concern to policy makers. Those of black gold (coal) too have held the country's economic future to ransom. Domestic coal supplies have been grossly insufficient to meet the growing demand from power generators. Coal India has even admitted its inability to catch up with future requirements. Hence the only option is imported coal that costs almost double the domestic produce. However, power producers have earlier refused to buy only imported coal as that would make projects unviable. Hence the power ministry has now come up with a coal price pooling model. One that would average out the price of imported coal with domestic one. That will make the pricing of the mineral more equitable for all players. Also coastal power producers will have more access to imported coal. Hence it seems that issues related to both supply and pricing of coal should be sorted out. One can only hope that with this prospects of the power sector become brighter.

While there are several macroeconomic issues plaguing the Indian economy, there is one very pressing concern that needs to be attended to with utmost urgency. Or else the long term ramifications would be disastrous for the country. We are referring to nothing but education and skill training. The statistics will tell you why we cannot afford to ignore this sector. Of India's 1.2 bn population, 65% is under the age of 35 years. And in fact, 54% of the population is under the age of 25 years. It must be noted that in both- absolute and percentage terms- these numbers are the highest. In other words, India is set to have the highest working population in the coming times. A huge work force bodes well for the economy. But only if it is educated and skilled!

Though India's enrolment rate is robust at 96% for entering primary schools, the story then on is not very encouraging. Only 20% of the population tends to complete primary education. The number for secondary and tertiary education dives down to 1.3% and 3.1%, respectively. The gross enrolment rate of 13.5% for higher education is among the lowest in the world. This means that a huge chunk of young populations enters the workforce with poor education and skill sets. How can such an unskilled workforce translate into a democratic dividend? It is because of these reasons that in recent years, policymakers have started laying great emphasis on education and skill development. The National Skill Development Mission (NSDC) has set a target of skilling 500 million people by 2022. This is indeed a mammoth task and will require public-private partnerships. Due to the large-scale poverty in the country the government has made education free, a constitutional right. Though the government spends about Rs 5,000-6,000 per student for 10 years or more, an additional amount needs be spent on skill development. This could help make many unemployed youth employable.

For the Information Technology (IT) industry, people are its most important asset. Thus, managing human resources effectively becomes an essential part of the business. With the recent slowdown that the IT sector is facing, utilisation rates have dropped. Thus, roughly around 100,000 revenue earning employees are estimated to have been benched. In that sense, the scenario is no different than in 2008 post the Lehman crisis. But there is one fundamental difference. During the 2008 crisis, benched employees were left to their own devices. Not much was done to bolster their morale or to engage them. Thus, many quit on the first available opportunity. As a result, when the economy bounced back and the fortunes of the sector picked up, many companies found it difficult to hire more employees to keep pace with growth. This time, IT companies are making efforts to retain benched employees. This is by allowing them to work on internal projects and also have access to technology, business domains and the like. The idea is to expose them to training and keep them meaningfully engaged. This appears to be a much better strategy so that when growth does pick up, lack of resources will not be an issue.

The world stock markets had a volatile week. The gains witnessed in initial days of the week on account of good earnings from the US companies were offset on account of deepening European crisis. The news about Spain's borrowing costs having shot above 7 % means the country could soon find itself unable to afford to borrow money harmed investor sentiment. Germany announcing a slowdown in its economy in the second quarter and UK government stating that they had to borrow more money than expected in June also added to investor concerns towards the end of the week.

In India, the earnings season continued amidst reports of political uncertainties. Fears of a weak monsoon, global concerns and a weak macroeconomic environment domestically kept Indian share markets tepid throughout the week. The BSE-Sensex ended the week lower by 0.3%.

Amongst, the other world markets, there was a mixed performance. While Hong Kong was the top gainer (up by 2.9%), China and Japan down by 0.8% and 0.6% respectively led the list of losers.

Source: CNNfn, kitco, Yahoo Finance

04:55  Weekend investing mantra
"You are neither right nor wrong because the crowd disagrees with you. You are right (or wrong) because your data and reasoning are right (or wrong)" - Benjamin Graham
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4 Responses to "Tatas voted most trustworthy yet again"


Jul 23, 2012

Any corporate which gives value for Human Resources and Ethical way of running the Businees will always stand like a Mountain.Tax Evasion and living on Short term gains will only result in Temporary Glory.
Let Tata motivate others who have not trusted the above business principle.



Jul 22, 2012

Where are the other industrial houses ?


George Elava

Jul 21, 2012

Tatas are known for the management that feels the concerns of the general public have proved once again its commanding position in the corporate field. Profit is the goal of any entrepreneurs, no doubt about it. But the profits through indecent way that would give catastrophical effect to the business group. This is what has happened to other indigenous corporate giants of India!


dharamnarayan dave

Jul 21, 2012

It is the fact and truth that the tata group is most truted in india as well most popular among all business houses may god help them to carry the flag for ever
D N Dave

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