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18 Experts On 2018’s Biggest Stories


2018 had it all. From an RBI governor who quit early and a banking and liquidity crisis that spread to non-bank lenders, to a Supreme Court that made headlines for reasons good and bad. A see-saw year for the markets, a spate of corporate governance mishaps, and a farm crisis that’s giving the Narendra Modi government much to think about as it prepares for the Lok Sabha elections of 2019, on the back of a series of state election losses.

Most fellow investors I talk to utter the word ‘quality’ in the first two sentences when we chat about investments styles. So if everybody is so quality-focused, how do low-quality stocks creep into institutional portfolios? They enter mostly at the tail-end of red-hot rallies like 2017 when yes, you are quality-focused but you are also valuation-focused.

Towards the end of 2007 mania, there was an unending quest for the 'next Larsen & Toubro' and in 2017 I was pitched at least three 'next Bajaj Finances'. The lesson here is simple: always gravitate towards best in class. If it’s unaffordable, wait. Don’t settle for a look-alike. Genuine quality stocks are like tennis balls, they bounce back. Lookalikes are like eggs, they break.

19th century dealers bought whole portfolios of paintings by great artists much like one would buy a diversified basket of stocks. Art is, after all, largely subjective. Different people interpret art differently. So, were these art dealers so prescient? Or were they not? Were they plain lucky? Or did they have a technique? And what can we as equity investors learn from how ‘they did it’? Investing is, after all, called the last liberal art.

By reducing after-tax returns, the tax imposition will raise investment return thresholds for foreign portfolio investors as well as private equity investors. India will also become one of few emerging markets in Asia to tax capital gains, potentially placing it at a competitive disadvantage for attracting foreign portfolio flows, all other things being equal.

For all investors, whether resident or non-resident, the tax-exempt status of such gains reduced the points of dispute with the revenue authorities; a tax, howsoever modest, will potentially reverse the benefits that have accrued going forward. Time will tell how this may impact the trend of growing savings financialisation that we have been witnessing.

I will deconstruct a lie which is being peddled aggressively:

Walmart’s acquisition of Flipkart has triggered $16 billion as the largest foreign direct investment in India.

I have used the italics to highlight the lies.

  • Yes, it’s ‘foreign’ because the asset being sold is a Singapore company, not an Indian one.
  • No, it’s not ‘direct’, because cash is not coming into the company, but going out to shareholders. In classic stock market terminology, it’s not a primary (FDI), but an indirect, secondary (FII) market transaction.
  • Heck, it’s not even an ‘investment’, because the dollars are not creating any new asset; instead, these are being used to purchase the old shares of existing investors.

And now to the biggest untruth, i.e. that all of this moolah is coming ‘to India’. No sir, close to $14 billion out of the $16 billion could be flowing out to Japan, America, China and South Africa. Only a measly couple of billion dollars could be working their way back into India. And yet we are the fools who are dancing!

Watching Mukesh Ambani unveil the next version of his digital plan at the Reliance Industries Annual General Meeting, was a moment that was both exciting as well as déjà vu. In 1999, when I was approached by the Ambanis to be a part of their planned digital foray, I remember Mukesh telling me what his overarching vision of a converged world was. To say it was ambitious and futuristic is an understatement.

The vision then, as it is now, was to straddle all segments of the digital value chain and the route we selected was wired broadband.

So, what was just a trial phase in 2003 is now being implemented in 2018.

As a global Indian, at various points, one can’t help but simply shake one’s head. It didn’t have to be this way.

If Indian savings were at the level of Chinese savings and India didn’t need external funding for its massive multi-decade investment needs, the politicians could get away with operating the RBI the same way as the People’s Bank of China. But that is just not the case and that ground reality cannot be ignored.

What is even more disappointing is that one does not have to be an expert in political game theory to recognise that this spat is not even good politics as it handed the opposition a live political issue this close to an election. I am quite sure, in timing his decision, Patel wanted to remind them of that reality.

Any standalone one-off dividend now, without a buyback of bonds by the government, would effectively imply that the same funds would have been both lent to and now separately transferred to the government.

To seek a standalone one-off dividend payment out of the contingency fund now, without any buyback of bonds by the government would be a double deployment of the same money towards the government. The first time by way of a lending by the RBI to the government, and the second, a transfer of dividend. Seen in this light, the latter would tantamount to monetisation of the deficit—plain and simple.

Even if we get past this crisis without much further damage, it is likely to leave a lasting imprint on the sector. NBFCs saw scorching growth over the last few years when banks were on the retreat. NBFCs were the providers of credit to many segments of borrowers, that banks had shunned, such as construction and real estate, SMEs, affordable housing, etc. This crisis will reverse the trend.

At its core, the issues with PSBs have to do with the umbilical cord that connects the them to the government, and thereby to politicians and even more importantly, to bureaucrats. Political influence, which the current government has been conscious to avoid, usually catches the attention. But the damage done by the directives from bureaucrats are often less visible. These problems stem from banking being a specialised activity. Top bureaucrats are beyond doubt extremely smart people with unmatched levels of commitment to the public cause. However, we must remember that they are not experts in banking. For such non-experts to give directives to public sector banks’ chairmen, who have spent 30-35 years in banks, cannot be efficient.

The Life Insurance Corporation has a tagline that says everything about its business—‘zindagi ke saath bhi, zindagi ke baad bhi’, which loosely translated means ‘in life, and after life’. Whoever coined the tagline was perhaps prescient. The tag fits the profile of an insurer of assets just as well as it does its latest avatar as an insurer of sovereign liabilities.

Traditionally India’s largest insurer is called upon to rescue or revive sick state enterprises. It dons the robes of the white knight with deep pockets to help the government to swing over the moats of losses and deficit caused by sloth and profligacy. Of late it is expected to rescue dying enterprises—LIC as the Liabilities Insurance Corporation of India.

The Supreme Court will now have to save itself from itself, that is the huge significance of the historic moment in Indian legal history of the four judges addressing the press, not only were they sending a message to the Chief Justice of India publicly but also to powerful litigants, ‘don’t mess with us’. History will judge whether they succeeded.

Secularism in India has oddly been considered to be consistent with state endorsement of Hinduism.

  • Article 48 of the Constitution calls upon the state to prevent the slaughter of cows.
  • Despite the fact that our Constitution confers a right to “propagate” religion, statutes enacted in several states, which make it difficult for preachers to proselytise.
  • Scheduled Caste Hindus who convert to Christianity are not entitled to contest elections from reserved constituencies.
  • The Hindu Code contains provisions which disincentivise Hindu conversion to other religions.

The 150 percent business is a ‘no-brainer’ and is taking away policy focus from more important areas of infrastructure and credit provision. Policy coordination is always easy in a textbook, but normal persons don’t like to give up power. Only the exceptional become more powerful by shedding power and coordinating for the larger good. Another reason could be a fear of rule-based systems. For then, you are not seen as the benefactor and this can be important in pre-election periods. There are real problems.

To have MSPs and, separately, free imports, is like pouring water in a leaking bucket.

Dealing with this crisis requires both imagination and political/administrative will. It does not necessarily always require capital-intensive schemes that are difficult to implement and have very long-term pay-back periods for the state.

We want to highlight one of these initiatives—dam desilting across Maharashtra—which has involved the coming together of different stakeholders, at scale, to address this problem, and has the potential to move the needle at the state level.

Over the next three-four years, this could be a key pillar of providing water sustainability, a critical pillar to building agricultural prosperity, to drought-prone Maharashtra. Perhaps it could show the way to similar approaches in other states where these conditions exist, to make the most of such solutions.

The corporate governance discourse in India has been dominated by concerns surrounding concentration of ownership and promoter control in companies. As a result, protection of minority shareholders has taken centre stage. But, recent events have triggered an altogether different discussion that commonly occurs in Western markets, namely the role of institutional investors who are guided by an active band of proxy advisors with the potential to destabilise management.

If 2008 was the year of the global financial meltdown, 2018 will be remembered, at least in India, as the year when corporate governance came of age. With major irregularities coming to surface in large entities, some of which had prided themselves as the flag bearers of the corporate governance movement, the myth of a direct relationship between size and governance standards exploded.

The lessons have hopefully been learnt. The solutions are in sight. What is needed is clarity, courage and conviction to put in place a meaningful pragmatic value-adding structure, supported by appropriate procedures, to ensure that 2019 will be the turning point in India’s corporate governance history.

No longer must it be said that when the going got tough, the tough got going from the boardrooms, and the stakeholders got burnt at the stake.

Thinking of elections makes me sad.

Every neta out there is a cad:

A scoundrel who should lose.

But hey, how can I choose,

When all of them are equally bad?

This is a dilemma every Indian voter is familiar with. All political parties are like competing criminal gangs, fighting for the right to be the only legal mafia for five years. Who do you pick? The least evil sociopath?

And along with this dilemma comes a broader paradox at the heart of democracy.

The Indian National Congress has made significant inroads in the three Hindi heartland states defeating the Bharatiya Janata Party in its den. The results have made the 2019 contest wide open with no clear favourites.

The boost the BJP gets from Prime Minister Narendra Modi’s personal political capital—which took the party past the finish line in elections over the last few years—has often been referred to as the ‘Modi factor’. There’s been plenty of debate after the results about the impact Prime Minister Narendra Modi’s campaigning had in these elections. Did the Modi factor work or fail? Opinion is divided.