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The Bullshit Factor - Views on News from Equitymaster
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  • Dec 12, 1996

    The Bullshit Factor

    Recently, I was giving a talk on "India versus China". I always begin such presentations by saying that China and India both merit investment as they are large economies in different stages of economic development. When trying to contrast the two gigantic neighbors, I spend a lot of time on the fact that India has a legal framework, while China does not - even citing Enron as a case in point where the Indian courts ruled AGAINST the state government - something that is unlikely to happen in China for many years to come. And of course I pointed out the fact that many Indians and most businessmen in India are familiar with English which makes communication easier, while in China you need to have a translator and, hence, are a bit more vulnerable in negotiations. And yes I had that important slide which shows a list of all the global accounting firms who have a presence in India and a list of other well-known Indian accounting firms. I could not help noticing the awe in the audience when I pointed out that I had heard that the number of accountants who graduate from college EACH YEAR is more than THE TOTAL number of accountants in China. And yes, we had the 20 million investors who had bought shares of the more than 7,000 listed companies with a market value of over US$ 120 billion and of course we had a market regulator called SEBI who had now begun regulating and disciplining the market and the market intermediaries. Well, I know we had corruption in India too but you did not necessarily have to be a member of the Communist party or a close friend of the ruling party to get pet projects - as is the case with many countries in Asia. And there was that transparency and court of law which one could always go to. And justice would be done even if it took a little time. India certainly had its advantages over China. So, happy that I had done my bit for the country and had managed to make a balanced presentation which may convince a few of those skeptical investors to visit India, I sat down to make way for the next speaker. And he brought me down to earth with one statement: "But you did not compare the bullshit factor in India and China".

    The bullshit factor is what sets us apart from China and south east Asia. Think about it. Every company that announces its results talks about how great they are, how they have the world's best technology, the world's third largest capacity, how all these companies are aggressively tapping those limitless export markets, selling to the rapidly growing middle class, and how these companies have a fifty percent rise in profits, ninety percent increase in sales, blah, blah blah. You don't find that sort of tomtoming in other parts of Asia. People just do their work. They make you a commitment. And they keep it. That I am told is the Chinese way of doing business. In India, I am reminded, we promise the world and then find a hundred excuses to explain why we could not deliver. The reasons are many but the common factor always is "it was not my fault". Delayed monsoons, power cuts, bad roads, shortage of railway wagons, increase in raw material prices, collapse in selling prices are the reasons you must have read about when most companies had to explain why their profits got a bashing for the first half of this financial year.

    Look at our IPO's. Pull out the advertising material used to sell those dream issues to 20 million investors in the good old days of 1994 and 1995. And see the reality of today. There are specific columns in business newspapers which deal with this sort of "Promise versus performance" stuff. I have rarely seen a chart where the promise exceeded the performance. Look at our GDR issues and private placements that we made between 1993 and 1995 to unsuspecting foreigners. What did we promise the world, what did we condition the world to expect of us, and what have we delivered? It is a wonder that foreign portfolio money still finds its way to the Indian market despite all the abuse it has been made to bear. Think about what some of our leading Indian corporates have promised or committed to on their roadshows. Reliance told the whole world that they had no plans to increase their capital in October, 1994 when they went on a global roadshow to announce their six-month results. A few days later they did the infamous UTI deal and then the famed merger. GE Shipping said they would stick to their core business of shipping and real estate but they continued to diversify and got dragged down in sugar losses and Prime's financial services. The legendary Hindujas made promises to their trusting Sindhi flock only to find that all the hype they created has now come back to haunt them. Essar promised us the efficient steel plant only to find that it doesn't quite deliver. Jindals had this home-grown cheap technology for making steel, but somehow they don't seem to be talking too much these days.

    Nehru's magical "tryst with destiny" speech, that till today makes tears roll down my cheeks, has failed to get us out of this road of suffering while his "commanding heights" - the PSUs - have acted as an albatross on our development. Mrs. Gandhi gave us the "garibi hatao" slogan and Rajiv Gandhi probably made some proclamations too about eradicating poverty but none of our Great Leaders delivered.

    We flash our institutions like SEBI and the legal system as signs of legitimacy to the global investment world but, if you cut the bullshit out and ask yourself the question: Are the guilty being punished? I am afraid that we have to hide our heads in shame. Promises versus performance. We console ourselves that things are a lot better today as compared to yesterday, but are they really? Has UTI been punished for what it has done? Or the SBI handling of MS Shoes? Or the perpetrators of the banking scams of 1991 and 1992? As a research analyst I was party to a lot of this bullshit factor and probably still am when I go on "roadshows" to talk about India. But reality always catches up.

    The day after I gave my most recent presentation, we had this horrendous air crash in New Delhi. I can imagine what some of the audience members must be thinking on their flights back home: Great guy, Ajit, nice talk - but all bullshit. One day we can legitimately claim to be the largest, the best, the most profitable or whatever other label we are aiming for. Until then let's just cut the bullshit and perform.



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