Some food for thought
The secret of life is honesty and fair dealing. If you can fake
that, you've got it made.
—Groucho Marx (American Comedian, 1895-1977)
Word for the day
Rewild (v)
To introduce (animals or plants) to their original habitat or to
a habitat similar to their natural one.
First random thought this morning
Yesterday, I met an old acquaintance after almost 20years. The
man heads a key project in India for a global engineering corporation. An
alumnus of IIT Delhi, he did his masters from US in early 1990s. His wife, an
LSR alumna, quit her teaching job to pursue her passion in baking. I vaguely
remembered that being Jain, this man was very particular about his food. He
would always avoid eating out.
Yesterday was however different. He took me out for lunch to a
nearby restaurant. When I wondered why this change! The answer was rather
unexpected. He said, his wife does not enter kitchen during her periods. Being
an expert cook, she does not like to hire a cook at home. So the options are
either he cooks himself, or eat out. Most of the time, they end up calling food
from outside 3-4 days every month.
Within a minute, I realized how irrelevant the recent SC
judgment in Sabrimala case could eventually prove to be. I realized that the
issue of entry of women in Lord Ayyappa Swamy is very different from the issue
of SC/ST entry in temples. The former is a matter of deep rooted faith and
practice, whereas the latter is a matter of oppression and deep rooted social
prejudice.
In a flash I understood the perspective of Justice Indu
Malhotra, the lone woman judge on the bench. I am convinced that this verdict
will be forgotten in few months. Many women who worship Lord Ayyappa Swamy may
voluntarily choose not to violate the religious sanctity of the shrine.
This instance also raised the level of my concern over the state
of judiciary in the country. Even the higher judiciary deciding the matters
based on morality, humanity and TRP of an issue, rather than the pure legality
and constitutionality of the issue, is a dangerous precedence. This threatens
to pollute the jurisprudence with a grave element of subjectivity. The
consequence would be that no matter would ever be closed. We shall see frequent
revisions of key decisions, leaving the society in a permanent state of
uncertainty and imbalance.
Chart of the Day
Cut losses, ruthlessly
At the risk of sounding preposterous, I must say that one thing
most of my fellow citizens seem to love is "chaos". I say this based
on my numerous observations made during my extensive travels across the
country.
The concepts like planning, processes, patience, compliance etc.
are yet not integral to day to day life of a common man; at least not to the extent
required to catapult our economy to middle income orbit.
Overreliance on Jugaad capabilities often motivates us to
procrastinate on important decisions. Moreover, sustainability is something
that is usually not a high priority for even top decision makers. The frequent
crisis seen in our financial markets are only a reflection of this mindset.
For example, investors suffered hugely as the commodity bubble
of early 1990s, dotcom bubble of late 1990s and credit bubble of mid 2000s
ruptured.
Without bothering about the sustainability of business models,
analysts wrote exuberant reports. Fund managers extrapolated monthly random
numbers (footfalls, eyeballs, units sold, orders booked, land bank acquired,
etc.) to long term profitability and justified the bizarre valuations.
Managements made promises like politicians in opposition. Those in government
claimed rise in stock prices as their key achievement.
The first bubble wiped off many prime institutions from the
Indian financial markets, most notable being ICICI, IDBI and UTI. These
institutions in a sense were key to the industrial development of post
independence India. The second bubble took the sacrifice of few banks and many
large brokerages. The third one has put the entire public sector banking space
in deep distress, and promises to eliminate many large promoter families
completely from business.
Did we learn anything from so much wealth destruction and
business displacement? Well, not much. Analysts have again extrapolated
unsustainable credit growth and net interest margins (NIMs) of non bank
financial companies to long term profitability and affording them astronomical
valuations. IL&FS and DHFL could just be harbingers of a systemic
malignancy.
Higher NIMs have been managed by many NBFCs through availing
cheaper short term credit and lending to long gestation period projects,
borrowers with lower credit rating, and household borrowers with little credit
history at relatively higher rates. This is obviously not sustainable.
Similarly, totally regarding the basic economic concepts of
equilibrium, the valuations of most consumer stocks have been driven higher.
Some consumer analysts, I spoke to, have been working with assumptions of
sustained growth in consumer demand as more and more Indian break the poverty
barriers. The constant argument has been the relatively poor per capita
consumption of Indians as compared to the global averages. Most of them appear
working with the linearity in the middle class household income growth, in line
with the trend seen post 6th pay commission award in FY2009. The tangible risks
like new domestic competition, more imports, erratic rural demands, falling
real wages, etc have mostly been relegated o foot notes.
The valuations of many such NBFCs and consumer companies have
transgressed the bubble line long time back. In past few days we have seen that
market has now taken cognizance of this fact and is willing to correct the
anomaly. The corrections could be quick and painful, like it has been every
time before. Besides, many investors losing money, collateral damage in
business space is also inevitable. I am reviewing my portfolio to assess if any
of my holding transgressed to the bubble territory. I guess, it's high time
everyone should be doing that, objectively and ruthlessly.
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