"It is not a lack of
love, but a lack of friendship that makes unhappy marriages."
—Friedrich Nietzsche
(German, 1844-1900)
Word for the day
Comstockery (n)
Overzealous moral censorship
of the fine arts and literature, often mistaking outspokenly honest works for
salacious ones
Malice towards none
How Sikka's resignation from Infy is different from
Mayawati's resignation from Rajya Sabha?
First random thought this morning
#TripleTalaq reactions
Amit Shah: 50% of Muslim votes
are in my pocket!!
NiKu: Thanks god! I escaped the
"Secular Ghatbandhan" just in time.
RaGa: Papa why did you do Shah
Bano?
MSY: TTT was never an issue. लडकन ते गलती हो जात है|
Lalu & Yetchury :
Secularism is in grave danger.
Light in the darkness
Yesterday, I briefly highlighted some of the weaknesses of our
judicial system (see
here). Though it should be a matter of worry for every righteous citizen,
my immediate concern is implication for my investment strategy.
Considering the following trends, I believe that investors need to
inbuilt litigation as important factor in their investment strategy.
(a) The businesses in India
are entering the regulatory net at an accelerated pace. In next decade, there
will be only a few unregulated businesses left, in my view.
In the transitory stage, it is common to have increased
litigation, as both the regulator and the businesses adjust to the new regime.
We have seen this in cases of TRAI and CCI, for example. In transition, RERA,
GAAR, GST etc. will certainly lead to higher litigation.
While companies need to reform their business strategies to adopt
to the regulated regime, investors would need to assimilate the impact of litigation
in their strategies.
So far we have seen only extreme panic reactions from traders and
investors in case a regulatory action is initiated on a company or group of
companies. In my view, investors may need to learn to accept litigation and
regulatory actions as a business routine rather than as a stigma.
(b) The compliance cost of
businesses shall certainly rise materially. The businesses that have the
benefit of administrative patronage due to historical or political reasons may
suffer worst in this case.
(c) In past, the investor
participation in corporate affairs had been minimal in India. With rise in
investors' awareness, market participation, institutionalization of holdings,
and evolution of strong investor advisory framework, investors participation in
corporate affairs shall rise materially in coming years.
This shall certainly help in raising the level of corporate
governance from the present standards.
Some good businesses which have historically traded at significant
discount to peers, because of poor perception about their corporate governance
standards, could benefit from this trend, in my view.
These business under pressure from investors' representatives
(institutions, money managers, proxy advisors etc.) shall be forced to amend
their ways, hence increasing the returns for investors and rerating of their
stocks. We have already seen some such cases in the market.
(d) An easier route to
bankruptcy and removal of socio-religious stigma out of financial defaults, may
materially change borrower-lender dynamics in the country. Present valuations
and business models of many retail banks and NBFCs may not be factoring this
change in dynamics. Investors may need to be cautious about this. ...More on
this later.
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