Some food for thought
"If man makes himself a
worm he must not complain when he is trodden on."
—Immanuel Kant (German
Philosopher, 1724-1804)
Word for the day
Hooly (adv)
Cautious; gentle.
First random thought this morning
Going beyond the gloom in stock markets and the muck flying on
news channels the whole day (yes it is no longer confined to prime time now); a
brilliant season has started.
In north India the weather is beautiful. Pre winter nip in the
air is brilliant. Flowers have started blooming.
It's festival time all across the country.
Durga Puja has just ended and Diwali festivities have already
begun. Card and drink parties have already started in posh South Mumbai, South
Kolkata homes and South Delhi farm houses.
The festive fervor is enhanced in Central India by the colorful
and noisy election campaign.
Celebrity marriages (Ambanis, Deepika-Ranbir, Priyanka-Nick)
scheduled in next two months are also adding to the joy of middle classes.
These marriages are being watched with great anticipation. Many aspiring couple
(and their parents), event managers, dress designers shall draw inspiration
from these celebrity marriages.
Switching off your TV and phone in the evenings and taking a
walk to local markets, could really cheer you up, if you are feeling bit low.
Chart of the day
Beyond liquidity vs. solvency debate
As the fresh breeze of liberalization and globalization entered
India in early 1990s, there came many new businesses. In the initial phase
these businesses were less regulated and promoters had little experience. They
experimented, in many cases rather aggressively. Few of them survived. For
example consider the following:
(a) The original
Airline monopoly of India AirIndia is almost bankrupt. Amongst the first set of
private airlines, which started business in early 1990s, only Jet Air survived
but struggling. Most like Sahara, ModiLuft, East West, Damania and NEPC, etc.
ended miserably. From the second set Kingfisher, Deccan and many smaller ones
went kaput. The latest set IndiGo, GoAir, Vistara and SpiceJet is surviving
well and making money too.
(b) The original
telecom monopolies BSNL and MTNL are almost bankrupt. From the first set of
private operators Reliance infocomm, BPL, Tata Teleservices, Escotel Spice,
Essar Hutchison, HFCL are out of business - sold off or shutdown. Airtel
survived & thrived, Idea has merged with Vodafone. Amongst the late
entrants, Aircel, DoCoMo, Uninor went out of business. The latest entrant
Reliance Jio has emerged a winner.
(c) In case of
mutual fund industry, the original monopoly UTI ended miserably. From the
second set many like GIC, PNB and Indian Bank shut shop and few like BoI, BoB,
Canara are barely surviving. From the latest set the first entrant Morgan
Stanley and others like HSBC, DB, Fidelity, Goldman Sachs have sold off. Top
(d) Many amongst the
first set of private banks did not do well. Likes of GTB, Times bank, Centurion
Bank, Bank of Punjab had to merge with larger banks. ICICI and IDBI reverse
merged with parent institutions. HDFC Bank and Kotak, Yes and IndusInd have
done very well. From the latest ones, we need to see how many are able to build
a sustainable business model.
(d) Similarly amongst
the first set of large private road and power asset developers many like IVRCL,
Gammon are bankrupt, some other like Reliance Infra, GVK, GMR, Suzlon are
struggling. A large number of old real estate developers like are already
bankrupt or struggling to survive.
(e) A large number
of steel manufacturers ended bankrupt in 1990s, just when the Indian economy was
moving to higher growth orbit from the Hindu rate of growth orbit. The story is
repeating two decades later.
(f) In a perennially
energy deficient country Reliance failed to make much headway in oil & gas
exploration business. After a struggle of more than a decade, they have almost
abandoned KG basin gas operations. The other notable investor in oil & gas
exploration business Videocon Industries is already bankrupt.
This all has happened when the demand for airlines, telecom,
mutual funds, roads, steel, cement and power has grown all through these years.
I am noting these events because I do not want to get involved
in the current popular debate about non banking financial companies in India.
Those in their forties and fifties would remember that the measures subsequent
to the previous banking crisis in early 1990s caused mushrooming of thousands
of NBFCs in mid 1990s. Every street in the tier I and tier II cities was filled
with sign boards of companies with suffixes like Finserve and Finlease. Less than
1% of those companies exist today.
This is certainly not merely short term liquidity vs. solvency
issue. This is about the paradigm shift in market place and ability to survive
the change. This is also about maturity in valuing these businesses.
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