Holding India to ransom - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Holding India to ransom 

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In this issue:
» Now bank employees go on a strike
» Another bailout needed, says Shiller
» S&P 500 will increase another 22%, says Barton Biggs
» Confusion reigns at Satyam
» ...and more!!

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While it may not be pouring monsoon showers in India currently, it's definitely pouring strikes. And the latest to join the bandwagon are employees of public sector banks. Starting today, banking transactions at most PSU banks and even some old private sector banks are likely to come to a virtual standstill for a couple of days as employees demand better wage revision packages and other benefits like pension.

In a sense, the grouse of the employees seems well justified. While other departments and sections that fall under State and Central Government have been handed out generous increase in salaries via the Sixth Pay Commission, even a once in a five year hike of 20% demanded by the bank employees has been turned down by the authorities concerned.

Whatever may be the outcome of this standoff, there will always be one loser, the common man. Officers at oil marketing companies, transporters, teachers or bank employees - all of them have been on strike in the recent past. We believe that salaries should be tied to productivity and the overall profitability of the organisation. In any case, we wonder if harassing the common man as a mark of protest is really the way forward at a time when we have ambitions of being an economic superpower.

Talking of strikes, the strike called by the private airlines was effectively countered by the civil aviation minister, Praful Patel, when he announced strict action against them. The airlines did not get much public support either.

But an unexpected support has come in from Sharad Pawar, Mr. Patel's party chief and mentor. As per a leading business daily, he has said "Of course, the government should reduce the taxes and ATF prices, which are extremely steep. How can they survive with these kind of taxes?... The government has not done anything for these organisations."

This is an interesting turn of events for the airline companies. What they could not accomplish by public grand standing, they will probably achieve through discreet lobbying. In our opinion, the government needs to do much more in making the Indian aviation sector more viable. The sector currently has a distorted structure due to years of government monopoly. Be it taxes on fuels or the use of ground infrastructure, Indian aviation sector needs a great deal of reform. Again, by holding the public to ransom by strikes is hardly the way for private airlines to negotiate terms.

01:30  Chart of the day
As per a leading business daily, Godrej Properties and Lodha Developers are planning IPOs in the next three to four months. While Godrej Properties is looking to raise about Rs 5 bn, Lodha Developers is looking to raise about Rs 20 bn by the year end.

In today's chart of the day, we take a look at how some of the real estate IPOs from 2007 have performed since then. For the purpose of comparison, we have given the market capitalisation as of the listing date a base of 100. We have compared the base with the market cap of companies on three different days viz. 8th Jan 2008, the day when the Sensex closed at an all time high, 9th March 09, when it closed at an all time low in the aftermath of financial crisis and the most recent closing. Needless to say, forget the all time highs, even the price on listing day has not been recovered, pointing towards how irresponsibly some promoters have behaved.

Source: CMIE Prowess

The current economic slowdown may have had a considerable impact on Indian IT companies but it has certainly not dampened their appetite for acquisitions and big ticket deals. Take the case of India's bellwether IT company Infosys. Turmoil or no turmoil, the company seems to have a clear strategy when it comes to expanding its business, which besides its core operations includes looking at other revenue generating streams. The company is also keeping an eye open for acquisitions, which is in contrast to its strategy in the past when it was keener on organic growth. Infosys is looking at acquiring companies in the range of US$ 450 to 500 m, which are expected to help Infosys diversify its client base, especially at a time when growth has been flat from traditional revenue streams. What is more, Infosys is also pursuing deals worth US$ 1 bn in this quarter with around 12 to 15 deals in the pipeline. That's huge and highlights how times have changed over the last decade when making multimillion dollar deals were considered big indeed. Bigger ambitions have paved the way for bigger ticket deals.

A few months ago, the US government conducted a stress test at banks that were receiving bailout money. It had then promptly declared that all is well. According to Robert Shiller, Yale Economist and bestselling author, critical to that test was the assumption that unemployment rates in the US remained below 9%. US unemployment rate now stands at 9.7%. So that assumption clearly doesn't hold true anymore. In fact, Shiller believes that unemployment will hamper economic recovery to such an extent that a second stimulus package is needed. In a recent editorial, The New York Times has also asked for a new stimulus package. However, unlike the newspaper, many believe that stimulus packages are not working. In The Daily Reckoning, Bill Bonner points out that stimulus packages are poorly implemented and might not stimulate demand after all. Investors who believe that the stimulus package will kick start the economy, are heading towards another crash.

Not everyone is as cautious though. Barton Biggs, who runs the New York based Traxis Partners, is bullish on United States and Japan. He feels that the recovery will start this year and the Standard & Poor's 500 Stock Index will increase another 22%. This will be on the back of increased consumer spending and improving housing markets. He also expects cost cutting measures at companies to improve earnings.

Confusion still prevails at Satyam as the convoluted series of events continues to take further twists and turns. Even as an investment association representing 300,000 investors and partially funded by SEBI has filed a class action suit against Satyam, it has now come to light that there may have been a diversion of funds to the tune of Rs 12 bn from Maytas Infra to Satyam.

Even though Satyam's accounts are expected to be restated by the end of this calendar year, Tech Mahindra, the new owners of Mahindra Satyam, has asked for an extension by 3 months. To add to it, engineering major L&T, which had earlier enthusiastically taken a 12% stake in Satyam and later bid for the company when it was put for sale, now seems to be rather unsure of its holding in Satyam. It now wants to unload its stake in a hurry and is seeking a waiver of the six month lock-in period. Considering the extremely speculative nature of the situation after the fraud was first uncovered, we wonder what prompted such reputed companies to dip their hands into such a mess in the first place.

In the meanwhile, the Indian markets nose-dived into the negative territoryduring the afternoon session of trade with the BSE-Sensex trading lower by 240 points (1.8%) at the time of writing. As for global markets, Asia ended the day on a mixed note, while the European markets are currently trading in the green.

04:50  Today's investing mantra
"The disadvantage of being in any type of market environment like Wall Street in the extreme is that you get over-stimulated. You think you have to do something every day. Wall Street makes its money on activity...You make your money on inactivity" - Warren Buffett
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9 Responses to "Holding India to ransom"


Aug 8, 2009



arvind midha

Aug 7, 2009

Before giving any recommendation for increase in salaries,Pay Commissions must examine/consider the prospects of increasing revenvues,productivity/profitability by Govt.deptts,undertakings/institutions.
Common man is still struggling for daily wage and has to satisfy his belly with one time meal.
Lots of qualified young and able bodied persons are job- less. Is not it the responsibilty of the apex planners to look in to this aspects.?
:arvind midha,ujjain



Aug 7, 2009

The negotiation is going on since novemebr 2007, Why the Government is opaying any heed. The demand of employees is genuine. The grades of 6th Pay Commission are much better than the demand of the Bank Employees.IBA authorised by GOI for negotiation with United front Organisation of Bank Employees, has recommended the wage increase by 20% and second option of pension to all employees. But Governemnt reduced it to first 17.5% and now to mere 13.5%. Where is the justice to employees. What option is left to the employees except to call for a strike even indefinitely. Yes! there are hardship to the common man but then what for the highly paid MPs (Performance every body knows) are sitting.Why no action at theinitial stage is taken by Govt if the demand is genuine. Govt wants distruption to service to common man or exploit the employees.Govt give no respect to good people but the people /group for value of nusance. They are forcing the employees to go on indefinite strike. Dr Singh and Sh Pranav Dada must take responsibility. No body objects at all when salairies of MPs/MLA are increased. These bills are passed unanimously but every time Bank employees has to wait, fight for their legitimate right even.



Aug 6, 2009

why should pay commissions decide pay hikes or otherwise of even listed profitable public sectors ? Decisions like employee costs should be bank board decisions and bo us of board members/execs should be tied down to company performance. This is to ensure company execs take wisedecisions in terms of increzsing salary costs especially in struggling banks



Aug 6, 2009

There is no means the public can express their frustation though.public is frustated with manythings.If Air India gets bailouts from govt so do pvt airlines.This is an unfair edge given by the govt to an inefficient organisation.perhaps our NETAS need more Air India though.If there has been a proper Air India or if there has been an Indian Airliner APJ kalam would not have faced the ordeal which everyone moans about in continental airline


Jaisingh Thakur

Aug 6, 2009

I am extremely grateful to you for having recognised the element of justice in the cause of the striking public sector bank employees. This govt. intoxicated as it seems to be by its brute majority in the Lok Sabha, is hell-bent on ignoring the just demands of, perhaps , the most vital sector of our economy. Judged by any criteria, profitability or productivity, the bank employees have performed admirably well and have kept the banking sector relatively recession-free and vibrant.Perhaps their productivity ranks even superior to the babus in the Finance Ministry who are sinecures and squander the hard-earned tax-payers' money on several foreign jaunts and enjoy astronomical perks all at the taxpayers' expense. When every sector of our organized work force, be it the State govt. employees, the Central govt. employees, the M.S.E.B. and the Oil sestor employees, have been given hefty salary increases, why is the same being denied to the employees of the banking sector ? When even our Hon'ble President and our M.P.s and our M.L.As have voted for hefty increases in their allowance for remaining absent most of the times when issues of national importance are being discussed, why is a meagre 20% salary increase and pension benefit being denied to these hard-working and efficient employees?. And lastly, every single customer who has anything to do with a bank will vouch for the fact that the banks remain free from any taint of corruption and that if at all, it remains confined to the top level functionaries of the banks who happen to be political appointees and contribute sizeable moolah to the ruling party's funds. Never mind, Messrs. Mukherjee, Chidambaram and the rest of you. Just remember, that you will come begging for our votes sometime again. That will be the time when we will carry out an effective cost-audit of your tenure in office. And believe me, you will be hard put to reneder any satisfactory account of the same to us.


Charanjit Singh Nagi

Aug 6, 2009

For the last few days I have read your mail with great interest and have enjoyed the information provided.It is well documented and quite wellbalanced in comment.Thankyou.



Aug 6, 2009

Yes the statement/remark is absulutely appropriate/precise.
This not the way to get demands met. the arm twisting of any kind by organised system should be penalised. Yes every system/organisation pass through tough times but we choosen to be there hence find out solutions by resonable means.


V S Gurumani

Aug 6, 2009

The only way to prevent such acts by organized labour is for the government to engage with the aam aadmi at multiple levels and in different ways. There seems to be an impression that the way to help the aam aadmi is through grandiose government schemes and dole outs. A smarter way to do this, not just for him (by the way, given that half of India is aurats, isnt the term a bit out of place?) but also for not so aam people, like those who are really poor, is by making the system work better for everyone. The big elephant in our midst is our utter inability to execute anything properly, and such strikes exemplify that gap.

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