Modi's choice - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
Modi's choice A  A  A
14 JUNE 2014

Prime Minister Narendra Modi should watch the film, Sophie's Choice.

The film depicts the choice that a mother, Sophie, has to make.
Based in the era of Hitler's Nazism and slaughter of Jews, Sophie has arrived at the Jewish concentration camp in Auschwitz with a 10-year old son and a 7-year old daughter.
But she can only take only one child with her: the other child has to be given away and will be killed.

We all have difficult choices in life.
We all make decisions that end up pleasing one section of our family (or inner beliefs) and disappointing the other.

Prime Minister Modi may be facing his "Sophie's Choice" moment.

Prime Minister Modi has ridden an amazing journey to the gates of Parliament backed by a combination of lavish funding from India's industrial powerhouses and the hopes, aspirations, and voted of over 250 million people who have voted for him.

The industrial families wish to continue their "cash and carry" business model which was stopped by a series of Supreme Court cases against a corrupt and inept Congress-led UPA government.

The voters of a disgruntled India - fed up with decades of lies, lies, and more lies from an increasingly arrogant and distant set of politicians - see in Modi a Messiah. They seek salvation.

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The problem is that India's inglorious industrial families are generally not seen to be creators of wealth. They are beneficiaries of a re-distribution of existing wealth.
They view India's resources as a way to maximize their net worth, not that of society.

You need "proof" of this allegation against the chest-thumping, TV profiled wealthy Indian industrialist?
Here is a quiz.
Indian probably has over 100 individuals with a net worth of USD 1 billion or more.
Name me 10 people who have created USD 1 billion without any perceived or actual help or favours from the government?
Still scratching your head after 3 days of thinking? Give up?
Therefore, wealth creation in India is not about how smart you are but, rather, it is about how smartly you can access what belongs to the People of India and can be converted into your personal wealth!

Even the stock market seems to think so!

On January 7, 2009 the then Chairman and founder of Satyam, Ramalinga Raju, sent a fax to the stock exchanges that he had manipulated the accounts of Satyam to the tune of
USD 1.5 billion. He was, he wrote, getting off "the back of the tiger".
Satyam's share price slid by -72% on that one day and the stock market indices fell by over -6%.

The stock market was not waiting for any CBI inquiry into what happened. They gave their own verdict on the dangers of investing in potential tigers (Table 1) based on fears that there was such a massive accounting fraud and worried that:

  • Other companies may have such similar issues, or
  • Some companies may not have access to lines of credit from banks who may "freeze" their lending - thereby hurting their growth trajectory, or
  • Nervous for any other reason and unsure of whether they were riding a tiger, a bull, a bear, or a dud
Table 1: How share prices moved on Jan 7, 2009 when the founder of Satyam sent a fax to the stock exchange that a billion dollars was missing. The Index fell -6%
How the market perceived managements and companies NSE Price (Rs)
NSE-50 Index 2,920.40 (-6.18%)
Mukesh Ambani Group
Reliance Petro 84.05 (-7.74%)
Reliance Indus. Infras 361.45 (-11.82%)
Reliance 1,200.75 (-12.41%)
Anil Ambani Group
Reliance Power 112.80 (-8.70%)
Reliance Natural Resource 53.40 (-13.52%)
Reliance Infra 558.60 (-13.63%)
Reliance Capital 517.50 (-14.25%)
Reliance Comm 206.50 (-17.07%)
Adlabs Films 177.45 (-17.35%)
Adani Group
Adani Enterprises 343.65 (-3.79%)
Adani Ports 352.05 (-10.92%)
Infosys 1,168.55 (+1.63%) (a gainer!)
HDFC 1,680.45 (-3.05%) (lost less than the Index)
Sterlite 302.05 (-4.26%)
Bajaj auto 434.70 (-6.31%)
Pantaloon 230.85 (-7.86%)
ICICI Bank 467.85 (-10.62%)
DLF 233.85 (-16.03%)
Suzlon 52.20 (-22.95%)
Source: Bloomberg

Fast forward to May 16, 2014: the election-day victory of Prime Minister Modi, who single-handedly brought the BJP to power.

And see what the market is telling you in terms of what kinds of companies and managements are likely to do well in this new political environment.

Table 2: How share prices moved the on May 16, 2014 the day the BJP government was declared the outsized winner of the general elections. The Index gained +1%
Is the market telling us which groups may benefit from a Modi business-friendly government? NSE Price (Rs)
NSE-50 Index 7,203.00 (+1.12%)
Mukesh Ambani Group
Rel. Indus. Infras 452.80 (+3.11%)
Reliance 1,079.25 (+2.45%)
Anil Ambani Group
Reliance Capital 454.10 (+10.61%)
Rel. Infra 626.25 (+6.88%)
Reliance Comm 129.10 (+4.45%)
Reliance Power 78.25 (+4.13%)
Adani Group
Adani Enterprises 529.70 (+5.82%)
Adani Ports 225.00 (+2.09%)
Adani Power 55.60 (+1.18%)
Sesa Sterlite 214.95 (+11.03%)
DLF 169.70 (+6.10%)
ICICI Bank 1,465.30 (+5.03%)
Pantaloon Retail 130.60 (+4.35%)
Suzlon Energy 14.60 (+1.39%)
Bajaj Auto 1,931.70 (-0.96%) (a rare loser!)
HDFC Ltd 885.80 (-1.92%) (a rare loser!)
Infosys 3,177.55 (-2.90%) (a rare loser!)
Source: Bloomberg

Choose your choice.
Of course, what happens on the day when there is a "news break" may not pan out as the years roll on.
But does the knee-jerk reaction of the market on May 16, 2014 have a potential message?
Is Bad, the New Good?

And, given that India is not the best place in the world where entrepreneurship is born and wealth created out of thin air but a country where wealth is transferred from the People to the Few, Prime
Minister Modi has a choice.

Like Sophie, Narendra Modi is holding 2 children.
But there are 2 gates in front of him: one of Heaven and one of Hell.

He reached this crossroad funded by the hands of India's robber barons, many of whom have thrived ever since the regime of Indira Gandhi legitimised corporate corruption.
He has also reached where he is because of the faith -and votes - of 250 million hopeful Indians.

As the budget unfolds and as the long term economic policy is cast, it will be clear whether Prime Minister Modi is giving India a Heaven or the
Hell. We know where the Congress - and other political parties - were taking India.

Maybe Prime Minister Modi will make a better choice.
A choice that Sophie never had.

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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.

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19 Responses to "Modi's choice"


Jun 23, 2014

As the article is known "Honest Truth" the content has been an eye opener. It is not that we the readers do not know it but it is refreshing that there are others similarly placed and having our right opinion.

Seeing Gujarat in a commercial sense, I definitely feel that things shall change for the better not by any vast reduction in bribary attempt by this Biggies but by the relatively little chance to do so in a policy driven set up where discretionary powrs are cut drastically. That has happened in Gujarat. At best, it will be far better than the congress government.

A recent story states that a cable TV operator from Kerala had to wait for more than 2 years for I&B permission though he has completed all the paper work but was not issued one as somebody suspected that the Promotor's father was a RSS sympathiser.

What a rediculous administration.

Congratulations for your article.

Like (1)


Jun 23, 2014


Like (1)


Jun 23, 2014

Only Vajpayee was the favouring India and thinking of overall progress and not just the progress of big industrialist. Modi and his team is not like Vajpayee and we will see Ache din of this big industrialist who had invested in Modi's upcoming in 6 months time before election by doing marketing for Modi with S;organ of NAMO and Gujarat model. If you see Gujarat in dept then you will realised that only biggies have become more big. Gujarat as the state and poor class people have been in misery. Check out yourself by visiting Ahmadabad and you will know the reality of Modi.

Like (1)

Paul Steaven Medari

Jun 21, 2014

Superb Article. Mirror of reality, an apt Allegory, enjoyed reading it. Modi will have tough choices to make, Hope and pray that he will make wise choices.

Thank you very Much Sir.

Like (1)


Jun 20, 2014

Excellent article. excellent observations.
waiting for another such article from you after budget. to know what choice Modi has made.

Like (1)

Prasad Khanolkar

Jun 18, 2014

Wow as always....Article very clear, precise. Sir you have the knack, vision, in getting into subjects which so called big authors do not venture into due to vested interests. You have always been and firmly beleive will continue to be the person for the people...

Very rare to find people like you in the stock market world who have always given comman mans interest top priority than any thing else....

Hats off sir as always......
May you continue to guide us as always

Like (2)

Subhash Jadhav

Jun 18, 2014

Nice article which says truth even though it is bitter. You correctly said about two gates in front of our PM. But these gates exist even when we entered into so called Globalisation. If we wish to proceed to heaven, we need to focus on basic issues,
1) innovation by which we will be self reliable and 2) productivity.
If we don't then we are just increasing time and distance to reach those gates.
To solve these issues, our PM needs to take lots of tough decisions which will give bad results in short term. But he has to convince people to accept it and that is a challenge.
In India, good things means Onion 5 Rs/kg, Petrol 50 Rs/Ltr and dollar 40 Rs.
If he don't take tough decisions, then we will be on same path which laid by Congress.

Like (2)


Jun 17, 2014

The article is well thought out and perfectly presented.
The stock market and its people mostly see everything only through the lens of stock market. But Mr Ajit is not just a man in crowd; he stands tall in the island of Lilliput’s.
There is a saying in tamil “which guy is a good guy?, the guy who is torching the roof is the good guy” Which means other guys are more troublesome. Mr Modi is definitely not that bad. Even if he is determined to be 101% sincere, he will have some compulsions. We cannot blame it on Modi alone. Democracy and especially our electoral is good and served the people many a times, but it is not a sarva roga nivarani (cure for all ailments)
I am an optimist. It is land of great men like Vivekananda, Gandhi. India will cherish. At the same am not unrealistic, Modi will not fulfill all our aspirations. God will answer our prayers. I hope and pray Modi will usher a new dawn

Like (2)


Jun 16, 2014

Well written article. Mr Ajit, I always read your articles in Honest Truth. Best wishes to all of you and your organization

Like (1)


Jun 16, 2014

It will be naive to expect Modi to sever the politicial - industrialist nexus. A reasonable expectation is to see how the cake can be made bigger for everyone to get what they want. I know this is idealistic as well but an attempt to appease different sections at different times while putting the country on a growth path is all I expect from Modi.

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