Thought for the day
"Forgive, O Lord, my little jokes on Thee, and I'll
forgive Thy great big joke on me."
—Robert Frost (American, 1874-1963)
Word for the day
Thewless (adj)
Cowardly; timid
Malice towards none
Teacher: Explain the meaning of "उल्टा
चोर कोतवाल को डांटे"!
Student: Nirav Modi accusing PNB of destroying his
business.
Few random thoughts
All political parties are blaming each other for every case of
corruption, malpractice or impropriety that is coming to light these days.
At the same time, most people are blaming all the political
parties for the menace. The distrust in the political establishment is almost
complete.
The result is an ominous confluence of cynicism, sadism,
frivolity, dissipation, and melancholy in the society. It is tough to fathom a
situation more unfortunate and more grim for the future of democracy and
democratic traditions of the country.
The good part is that things were almost the same in 1975-1976,
1988-89, 1994-1995, 2011-2013. After each episode the democracy emerged
stronger, economy emerged stronger and markets performed much better after the dust settled.
With this background, I may share some random thoughts with the
readers:
(a) The Indian equity
market looks bad this morning. It is likely to worsen significantly from the
current level in next 12months or so. This could be an opportunity for
investors to position themselves for the dawn that will inevitably follow the
gloomy dark.
(b) Speaking to numerous
businessmen, bureaucrats, and entrepreneurs, I have realized one thing that the cases of
politicians corrupting businessmen, bureaucrats and entrepreneurs may be few
and far between. Whereas the vice versa is mostly true.
The general practice is that a businessmen makes an indecent
proposal to an amenable politician and the business as usual follows. Usually
the corruptible bureaucrats are used as a conduit between ingenious businessmen
and opportunist politician.
So, blaming the entire political establishment while signaling out
only the businessmen/bureaucrats who got caught may not be sufficient, if we
are at all interested in finding a solution to this menace.
The corrective process may need to start from the root cause of
corruption (greed and selfishness of people in general). Till then we shall
continue to see more episodes of the same soap opera.
(c) In a limited liability
company the liability of equity shareholders is limited to the amount of
capital invested by them in the company. In case of winding up or liquidation,
they have right to receive a proportionate share in the residual value left
after satisfying all the liabilities.
However, in certain circumstances involving fraud etc., the courts
have the right to lift the corporate veil and remove the protection of limited
liabilities. So far the cases in which the corporate veil has been lifted, have
implicated the key managerial personnel from the promoter group.
The points to ponder are:
(i) If it can be proved
that the fact of fraud etc., was highlight in annual report of a company and
discussed at its AGM, what stops the court from treating all equity
shareholders of such company as accomplice and extending their liability beyond
!!!
(ii) How many individual
investors, who have invested in publically traded equity shares, are aware that
even if one in a billion, but there is a chance that they may be called upon to
contribute more than the money they have already paid for buying the equity
shares of a company, to satisfy company's liabilities in case of a fraud.
(iii) In many of the
bankruptcy cases, the residual value left for equity shareholders may be zero
or even negative. Many cases may be resolved just by stripping off the assets
of the defaulting company, leaving nothing for the equity shareholders. In most
cases expect the capital to be written off.
Wonder why a small
investor would take so much risk and invest in these companies at this
juncture. Someone needs to tell them that lotteries have one in 10million
chance to go in their favor.
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