After the IPL tango, the Congress tap dance - Straight from the Hip by J Mulraj

After the IPL tango, the Congress tap dance

24 APRIL 2010

Last week's news was dominated by the shenanigans at IPL, India's most popular global brand, and the investigations by the Government into misbehaviour by Lalit Modi, who had conceived the idea and popularized this format of the game. It is alleged that he did the tango with team owners, to get stakes for himself and relatives, with the media agency, for a commission, and, perhaps, with those involved in match fixing. The investigations will result, as they ought to, into appropriate punishment for any wrongdoing. However, it also brings out the sheer hypocrisy of our attitude towards money.

Had IPL and BCCI been a company, instead of a trust to promote the activities of cricket, Modi would have got sweat equity or options for his efforts to conceive of and promote this version of the game. But we Indians are wont to publicly decry the garnering of excess wealth even as we privately covet it. This cannot be an excuse for wrongdoing, if any, by Modi, only a backdrop of how twisted things can become if we profess one to want thing whilst desiring another.

A similar hypocrisy is witnessed in the grant of a tax free status for agriculture, on the pretext of helping poor farmers. Most of them are subsistence farmers, earning barely enough to make two ends meet. The tax free incomes helps the larger farmers, many absentee, who then dictate agricultural policy often inimical to the interests of the marginal ones, as also corrupt officials who use the tax free status to launder payments for facilitating transactions.

After the IPL tango, we are now witnessing the Congress tap dance! Revelations that the Government has tapped into, and recorded phone conversations of leaders such as Digvijay Singh (Congress), Bihar Chief Minister Nitish Kumar, who has achieved a remarkable turnaround of the state, Prakash Karat (CPM) and Sharad Pawar (NCP) are bound to lead to a furore when Parliament opens Monday.

So if anything can derail the India story, it is this sort of poor governance. Else, as highlighted in the pre IPO analyst meet of Jaiprakash Infra Ltd, there is an enormous potential for growth. The company is setting up a 6 lane all concrete highway between Noida and Agra, what would cut travel time to around 2 – 2 ½ hours, and, at 5 places along this highway, would create new townships of 1-2 m. people each. If the plans of the Roads Minister Kamal Nath fructify, India would have, as per a McKinsey study, developed 300 new townships, each with a population of 1 m. This essentially means a rural to urban migration of 300 m. people, the largest in human history, which would set off a tidal wave of economic growth. The 5 new townships of Jayprakash Infra are part of these 300 new townships.

India, China and other emerging nations are also leading the way in innovation, especially in low cost technology. The Economist of April 15 carries a cover story on this mentioning, in particular, the Tata Nano and Bharti Airtel's model by which it slashed costs of telephony. Or the low cost, environmentally friendly refrigerator, Chotukool, developed by Godrej affordable for rural India. Another is Swach, the cheapest water purifier, developed by Tatas. Tata Motors is soon to introduce a car, being developed by French inventor Guy Negre, that would run on compressed air!

So here we have a heady mix. On the one hand are the amazing entrepreneurial efforts bringing out affordable products suitable to emerging markets, and with the developed world recognizing the talent in India. The Economist article says that the Fortune 500 companies have established 98 R&D facilities in China and 63 in India. The spend on infrastructure will be transformative. The high savings rate will, over time, reduce our dependence on foreign investors.

On the other hand are the examples of double standards and abysmal governance. Also the inability of the Government to let go of its companies and to concentrate on doing what a Government is supposed to do. For example, it has decided, last week, to pump in an additional Rs 15,000 crores into the numerous public sector banks it holds a majority stake in. The growth of the banks is curtailed if the Government insists on retaining a majority stake, and cannot pump in more because it wastes money. The result? Today, the top 3 global banks, by market cap., are Chinese, which has 5 in the top 20 banks in the world. India has none. The most valuable bank is ICBC, established only in 1987. Our own SBI, which has a 200 year old dividend history (forget profit history, forget history, it has paid dividends for 200 years, a testimony to its financial strength), is not even amongst the top 100. And we are masters at destroying our own brands; witness the shenanigans at IPL.

Corporate results for Q4 are good. RIL posted a 30% growth in net profits for Q4 to Rs 4710 crores, although Dalal Street, like Oliver, wanted more. Now the three Government majority owned oil marketing companies, IOC, HPCL and BPCL, are not going to declare unaudited results; even as RIL shows a 30% growth in PAT, they are swimming in red ink, another example of the Government's ability to cut its own legs. ONGC is belatedly being given the same price as RIL for its natural gas, at $ 4.2 /mbtu, which would boost its bottom line, although, for reasons unknown, OIL gets a lower price yet.

Hero Honda's PAT was up 49%, TCS was up 47%, Sesa Goa's was up 121% at 1212 crores and Axis Bank up 39%.

Globally, Europe remains on tenterhooks. The EU has bailed out Greece, but problems remain. Its Government has concealed the extent of its poor financing; the fiscal deficit is now shown as 13.6% of GDP, as against the 12.7% earlier reported. There would need to be a lot of belt tightening; a lesson that our Finance Minister should draw upon to rein in expenses now rather than wait for them to become unmanageable and be forced to do so later. Any further bad news from Greece would be a disaster for European banks and can lead to a domino like effect for other shaky countries like Portugal, Italy, Ireland and Spain.

The US seems to be faring better; it is a more flexible economy than the Eurozone. Sales of new single-family homes were 411,000 in March 2010 (seasonally adjusted), 26.9 percent above the previous month.

Last week the BSE-Sensex rose 103 points to end at 17694, and the NSE-Nifty rose 41 to end at 5304. Investors should watch the fallout out of the phone tapping controversy in India, and the rollout of events in Greece. The Indian story is good but we are our own worst enemies.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

Equitymaster requests your view! Post a comment on "After the IPL tango, the Congress tap dance". Click here!

11 Responses to "After the IPL tango, the Congress tap dance"


Apr 24, 2010

The IPL was originally the idea of Kapil Dev as ICL but this was sabotaged by BCCI and then reformatted as IPL, Indian Phrauds League

Equitymaster requests your view! Post a comment on "After the IPL tango, the Congress tap dance". Click here!