Soros,Khosla backed SKS Microfinance Debacle Exposes India Regulatory and Governance Risks

18 Nov, 2010 by
Indian Markets

India’s Fast Growing Economy based on Consumption rather than Exports has made it a Darling for International Fund Managers.When the whole world is suffering from some structural crisis or the other,India seems an like an oasis in the desert.However like a Mirage,the Governance and Regulatory Shortcomings make India look much better than what it is.$90 Billion of Record Foreign Inflows have been invested into India mostly into the booming Stock Market even as Indian Retail investors have fled.The dichotomy is perhaps explained by the problems faced by people on the ground who have a better sense than Fund Managers sitting in their Glass Towers in Singapore,New York and London.Insitutional Investors in India are mostly Compromised or Incompetent in my view herding into the Indian Markets dazed by the positive aspects of the Indian Economy while glossing over the Risks.Crushing Income Disparity where a $2 Billion Home is constructed while 80% of Indians live on less than $2 day,Pervasive Corruption with Billions being Swindled in Telecom and Land Scams,Massive Red Tape and Policy Bankruptcy has been ignored.However these Risks  remain as can be seen by the SKS Microfinance Debacle.

SKS Microfinance Exposes the Regulatory Risk

SKS Microfinance is India’s largest microfinance institution that came out with a very successful IPO in 2010.There were hardly any negative reviews about the company despite frothy valuations.The stock went up by 40% as investors lapped into the Indian growth story.However a societal backlash against these Private Equity Microfinance Institutions has resulted in a sharp fall for the stock.With accusations of intimidation and money gouging,these companies have suddenly become Evil with both the administration and legal branches of the government cracking down.Note the 2G Telecom Scam has also resulted in huge regulatory uncertainty for a number of Foreign Telecom Companies who invested in small Indian telecom firms with licenses.Most of these License were procured through Fraud and Bribing of India’s Top Ministers.The Scale of Corruption is Mind Boggling with estimates as high as $50 Billion.The government’s own auditing and vigilance branches have exposed the conspiracy.However there is no prosecution or punishment as top politicians and bureaucrats were involved.Note Real Estate is another Hot Corruption Sector with most of the large Real Estate Companies like Unitech,IREO,Emaar MGF,DLF involved in one or more scams.The Mining Sector is another prime target for rogue politicians and robber barons.Its an open secret that ministers of the Karnataka government  have made billions of dollar through illegal mining.Vedanta recently got its license revoked for bauxite mining as it was found to violate numerous law in collusion with state officials.

SKS Microfinance shares fall 20% after earnings warning – ET

Shares in SKS Microfinance, India’s largest and only publicly traded lender to the poor in India, dropped 20 percent on Thursday after the microfinance company warned that an ordinance enacted on October 15 by Andhra Pradesh government on collections could have an impact on its profitability.India’s microfinance industry, which surged to prominence when George Soros-backed SKS raised $358 million in an IPO, faces a regulatory clampdown that could erode profits and hurt growth.Apart from Soros, SKS is also backed by investors like Sequoia, Kismet Capital, Unitus, venture capitalist Vinod Khosla and Infosys Technologies founder N.R. Narayana Murthy.

Top 10 Companies in India are mostly concentrated in the Financial and Oil/Gas Sectors

17 Nov, 2010 by
Energy,Finance,Technology Sector

India’s Fast Growing Economy is seeing substantial churn in the Top 10 Rankings for Companies.Coal India which recently did a successful IPO straightaway went from being a Government Owned Private Company to the Top 5 in Market Capitalization Rankings.The Top 10 Rankings are dominated by State Owned Companies known as PSUs in India.Despite Privatization in the 1990s,Government Companies Lead  the Rankings.Note the Top 10 Rankings don’t have any Private Companies because of the lack of good information about their Financials.Note Most of the Largest Companies in India are related to Banding and Oil/Gas as is the case worldwide.India’s Technology Companies like Infosys,TCS and others are still way behind in Revenues compared to the dominant Materials,Fossil Fuel,Industrial and Financial Sectors.However note that the diversity is much greater when you rank the companies by their market capitalization.TCS and Infosys are both amongst the top 5 recovering strongly in 2010 from their 2008 underperformance.You also see  a Capital Goods and Telecom Representation in this Top 10 Rankings

Top 10 Companies by Revenues

1) Indian Oil Corporation (IOCL) – This is  a government owned PSU in the Oil and Gas Distribution.It has Revenues of $48 Billion but Profits are Low as the Company has to bear the Subsidy Burden of Fossil Fuel Products.The Company is expected to come out with a Follow on Offering Soon.

2) Reliance Industries – The Flagship Company of the Ambanis and India’s largest Private Company Reliance Industries is also an Oil and Gas Giant .The Company has seen very sharp growth in the last decade and is diversifying into Retail.It has $29.5 Billinon in Revenues

3) Tata Steel – This is the only Materials Company in the Top 10 and is a part of the Tata Group.The Company has expanded globally with some top acquisitions like the Corus Group.Revenues of $28 Billion

4) BPCL – Like IOCL,this is  a government owned PSU in the Oil and Gas Distribution.It has Revenues of $28.8 Billion but Profits are Low as the Company has to bear the Subsidy Burden of Fossil Fuel Products.

5) HPCL -Like BPCL and IOCL,this is  a government owned PSU in the Oil and Gas Distribution.It has Revenues of $22 Billion but Profits are Low as the Company has to bear the Subsidy Burden of Fossil Fuel Products.

6) State Bank of India – SBI is India’s Largest Bank which is majority owned by the Government.The Company has a number of Subsidiaries and has been a market outperformer in recent times.Revenues of $22 Billion

7) ONGC – The Oil and Natural Gas Corporation is another Oil/Gas Company owned by the Government.It is more into upstream operations and is also globally expanding to meet India’s Voracious Energy Needs.The Company has revenues of $20 Billion

8)Tata Motors – The is another Tata Group Company and is the producer of the famous Nano $2500 Car.The Company vaulted in the big league by acquiring Jagaur Land Rover.Revenues of  $13.5 Billion

9) Hindalco Industries – Only Birla Group Company in the Top 10 is also the only Mining Company.Hindalco is primarly an Aluminium Producer and joined the big boys after acquiring Novelies

10) ICICI Bank – This is the largest Indian Private Bank with operations in all Financial Services Sectors.The Company has faced a bad time during the Lehman downturn but has recovered well.Revs of $12.5 Billion

Top 10 Companies by Market Capitalization

1) Reliance – Market Cap of $85 Billion

2) ONGC – Market Cap of $60 Billion

3) TCS – Another Tata Group Company,TCS has performed strongly in recent times almost doubling its share price and increased its market cap to $45 Billion.

4) SBI – Market Cap of $42 Billion.

5) Infosys– The Most Famous Technology Company is known for its very high corporate governance standards.It has the industry leading margins and has shown a strong growth rate over the past decade.Overcoming the outsourcing model will be a challenge for the future growth of this IT bellwether. Market Cap of $38 Billion

6) NTPC – This is India’s Largest Utility and is Government Owned.One of the best managed PSUs,it has strong growth plans given the huge power requirement of the country.Market Cap of $35 Billion

7) ICICI Bank – Market Cap of $30 Billion

8) ITC – This is one of India’s Largest Consumer Companies.Primarily a Tobacco Company partly owned by BAT,it has diversified into different sectors such as Hotels,Consumer Goods,Paper,Retail etc.One of the best plays into India’s Consumption Story.Market Cap of $29 Billion

9)L&T – This is India’s Largest Private Capital Goods Company which is Professionally Managed.The Company has benefited from India’s massive infrastructure investment in recent times and will continue to do so in the future as well.Market Cap of $27 Billion

10) Bharti Airtel – India’s Largest Telecom Company and 4th Largest in the World has taken a big hit in recent times with hypercompetition in the sector.Recently bought the African Operations of Zain.Market Cap of $26 Billion.

Note I have not listed Coal India which has a market cap of $45 Billion and would be around 3rd in the list because of its recent listing.The Market Capitalization is approximate and is calculated of today’s date.

“Corruption as Tradition” Justification in Bangalore Land Scam by Chief Minister of Indian State

16 Nov, 2010 by
Real Estate and Construction

Corruption in India has taken a widely virulent and blatant form with scams popping up almost everyday.Greed is Good has become  the motto for India’s Role Models in Sport and Military as well.India’s Politicians are Leading the  protagonists with Realty being the Main Theme.Note Real Estate companies in India are notorious for corruption with the sector being avoided by Fund Managers.India’s Southern State of Karnataka is known for its IT Industry with capital Bangalore famous as a Knowledge Hub.However the Politicians of that State have made it the Corruption Capital with Bangalore equally famous for Land Grabbing and Real Estate Scams by Bureaucrats and Politicians.Note the rest of Karnataka has also been made famous by Illegal Mining.Robber Mining Barons have become powerful enough to topple governments with some heading the administration as Ministers.

The Chief Minister of the State has justified Corruption in Land Dealings as Tradition.Being Accused of favorably allocating Prime Land to Companies owned by his sons,he has sought to defend himself by accusing previous administrations of indulging in land scams as well.India’s Image of Corruption has become bleaker by the Day with the Commonwealth Games Scam,Adarsh Housing Scam and the Multi Billion 2G Telecom Spectrum Auction Scam.Now comes this Scam perpetrated by the leaders of the Chief Opposition Party.India’s Political and Business Elite have scant regard for India’s Justice System as hardly anyone is prosecuted for Corruption.Only some small fish are made scapegoats while the Ringleaders  blatantly and openly indulge in manipulation and corruption.

I have done what my predecessors did: BS Yeddyurappa – DNA

Strongly defending the alleged grant of prime land in and around Bangalore to his children, chief minister BS Yeddyurappa said that neither had any wrong been committed nor any law broken in the issue.

Releasing a few documents related to irregularities allegedly committed by his predecessors in land deals, the chief minister warned the opposition parties that if they continued to target him, he would expose them completely.

Yeddyurappa also claimed that no wrong had been committed in allotting a 4,000 sq ft residential site to his son, BY Raghavendra, under the chief minister’s discretionary quota, though he owned two residential properties.

The CM, however, had a tough time answering pointed questions on why Raghavendra sought permission from the BDA to sell the site allotted to him within months of the allotment. Yeddyurappa, who initially claimed he was ignorant of the issue, said that enough such requests had been made to the BDA.HD Kumaraswamy had allotted 288 sites, while N Dharam Singh and SM Krishna had given 76 and 334 sites, respectively, he said. “My sons are doing business and running industries, like anyone else. Is it a crime for a CM’s sons to do business?” he asked.

3G in India – A Marketing Gimmick or a Game Changing Technology

29 Oct, 2010 by
Telecommunications

3G Technology made a lot of waves in India after the government managed to reap a huge windfall  in auctioning off the airwaves required for using the 3G Technology.India’s big telecom providers like Airtel,Tata Docomo etc. bid savagely  for this precious resource.In the end it remains questionable whether the government really gained from the Rs 100,000 crores it got.Critics say that to recuperate this massive expenditure,companies will provide 3G services at very expensive rates making communication in India  an overall loser.However it remains to be seen as leading providers Airtel and Tata DocoMo start providing 3G services in 2010 itself.Note Docomo is one of the 3-4 Japanese telecom giants which has implemented  3G Technology a few years ago which proved to be a big success.While Japan has had a good 3G experience,other countries did not have it so good.In UK it pretty much turned out to be a cropper.It remains to be seen whether in India it can be a success or not.

What is 3G Technology

3G Technology is in fact a collection of technologies like CDMA,W-CDMA,TD-SCDMA and  HSPA+.All these technolgies have to be compliant with a specificiation known as IMT-2000 specification.While there is a lot of other technical stuff to describle 3G,in simple layman’s term 3G technologies provide faster data speeds than the normal 2G technoligies being used in India right now.

Is 3G a Marketing Gimmick

3G can be looked upon as a Marketing Gimmick by Telecom providers to boost their subscriber numbers in an increasingly commoditzed field where there is very little to discriminate between an Aircel and a Uninor connection.Note 3G is not providing any game changing application or feature,it just offers you more data speed.So its like moving from a dial-up connection in your computer to a fast broadband connection.This enables you to access more applications like video on demand,video chat etc.Its not like a iPhone which allowed a fundamental new feature like the Touch capability.In a lot of countries like UK is has proved to be a damp squib with 3G not really creating any excitement for telecom users.

Can it be a Game Changing Technology in India

The success of 3G Technology is very specific to a region and the players who are providing the services.In India  3G has the potential to be a Game Changer provided  that it is executed well by the companies.The most important of which will be the tariffs because India is a very price sensitive country with 80% of the population living under $2/day.However if done well it can prove to a great value adder to India.The reason is India is severely under-penetrated in PCs and Internet technology compared to other countries at similar development levels like China.However mobiles are quite ubiquitous and mobiles could become the defacto Internet consumption devices in comparison to PCs and laptops in the rest of the world.Note Smartphones are no longer a niche super expensive device with small Indian players like Micromax,Spice coming out with cheap Android smartphones which can leverage 3G speed .In India’s hypercompetitive telecom market,3G provides a great importunity for both telecom companies and consumers to revolutionize the consumption  of Internet.

My Experience in Buying Cheap Car Insurance in India – Avoid Private Insurance Companies

21 Oct, 2010 by
Finance

India does not have a lot of good information on the Internet about various common things and it is frustrating and time consuming to go about in choosing the right option.I tried to buy insurance on my 3 year old car and there was not a lot of good blogs/websites which would indicate how to go about buying the cheapest car insurance out there.Most of the websites and insurance comparison websites that have come up are in general biased and promote companies in order to generate commissions.So I decided on doing investigation on my own and finally managed to get extremely cheap car insurance which even surprised me.So even though this blog does not deal with personal finance issues much,I though I would write my experience so that others could benefit without without wasting time and money.

Also read about the different Car Insurance Products in India

Private Service Companies in India all indulge in quick buck at the expense of small consumers

India’s Insurance Industry is still an immature one with penetration quite low like with other financial inclusion parameters.The service levels of the industry are pathetic and the trustworthiness of the private companies is pretty much zero.Note this goes to most of the service oriented private companies in India.All of  them try to make a quick buck through information asymmetry and the poor  state of Indian Justice.I have been cheated by almost all companies like Telecom,Cable,Logistics etc. and I think almost all Indian consumers have been as well.Its not worth the effort and money to go after these big corporate entities for contract infringements.

Steps in Buying the Cheapest Car Insurance

1) Try to avoid Private Companies as they make a lot of promises and advantages but disappear once the time to pay comes up.Insurance being such a critical service I did not want a private company irrespective of their glitzy new features etc.

2) Forget the Fancy Features that are being offered to raise the premium like zero depreciation,towing,24/7 helplines etc.Most of them are just ways to raise premiums and lure customers.Try and get the bare bone policy with the lowest premium

3) Compare Quotes from different Insurance Aggregators without buying from them – I used 3 Insurance Comparison Websites www.policybazaar.com,  www.insurancepandit.com and www.apnainsurance.com. This gave me a general idea about the prices being charged by various insurance companies.I could quickly shortlist Iffco-Tokio as one of the cheapest insurance providers with government general insurance companies oriental insurance,national insurance being slightly expensive than these.I could not find anything great or cheap about Icici Lombard,Bajaj Allianz and tata Aig which use a heavy amount of TV advertising and had a good recall.

4)  Private Companies make Consumer Lives Such a Pain that they would wish they never had bought a Car – Note applying and managing to pass a claim from a private insurance company is such a pain in the ass that you would wish that you had not ever bought a car.You can read about the customer travails with companies like tata-aig,icici-lombard and others in www.mouthshut.com .The measly amount of claim that they give you after a harrowing experience is not worth the pain of applying.I think that is the general strategy for these companies.Make the customer go to such pains that he does not claim any insurance.

5) Shortlisting the Insurance Company and Policy- After finding all these things out,I decided to buy a policy that I would never have to use unless in  an extreme case like it getting stolen,destroyed or burnt.So I picked the cheapest company (Iffco Tokio) which had a quasi government connection as well.I went to its website www.iffcotokio.co.in and did not use the consumer aggregator,got the cheapest option (by making the highest possible deductible and leaving every frill).You can play around with different options to see the premium.This made my insurance premium approximately half of what it was earlier.I could have bought only 3rd party coverage ( which is mandatory by Indian law) which would have made it even cheaper but I decided to use the complete coverage so that I could use the policy in case of extreme cases.

Summary

Claiming Insurance in India from Private Insurance companies is a Harrowing Experience most of the times.The customer care employees are rude beyond measure while the marketing guys are like angels.While Insurance Companies are showing spectacular growth on the back of customers but their long term growth is a question.Government companies are the best bet as you can easily check from the success of insurance claims figures given by the Insurance Regulator (IRDA).If you decide on a private company,then try to pick up the cheapest policy possible which you do intent to use unless in a case of an extreme event.

Death claims  – BNet

According to figures released by IRDA, LIC has settled 95.48% of death claims for the year ending March 2009 as against the claims of 82.26% for the private companies. Also the percentage of claims repudiated stands as high as 9.97% in case of private insurance companies as compared to which the percentage of death claims repudiated stands at 1.33% for LIC. Despite the private companies trying to cope with the state-run major, they still lag behind LIC.

Among the private insurance companies,? Bharti Axa Life Insurance with 44.83% of claims repudiated stands at the highest leaving Aegon Religare which has 71.43% of claims pending. A senior official from Aegon said that, “The company is still in the starting stage. And thus it is difficult to compare it with other insurance companies which have long been in this business.”

Pot Calls Kettle Black as Indian Politicians indulge in Mud Slinging over Multi Billion Commonwealth Games Scam

20 Oct, 2010 by
Green Investing

The Commonwealth Games (CWG) hosted in New Delhi,India recently gave rise to a monumental scam.It is an open secret that huge amounts of cash were siphoned off by officials,politicians and contractors involved in infrastructure building.The cheating and fraud committed on public money has been exposed already.Some of the officials have been fired without a single one being jailed or convicted.The CWG Committee was led by a leader of India’s ruling party Suresh Kalmadi while the provincial government of  Delhi is also ruled over the the Congress Party.The probes and investigation which were held in abeyance until the completion of the Games has started now.However like always expect a lot of media fanfare without any convictions or jailtime for the offenders.India’s Ruling Party Members are already blaming each other openly for being corrupt without fear of retribution.India’s Political and Business Elite has made the mockery of Indian Justice System a Child’s Game.The Chief Opposition Party also can’t come all guns blazing as one of its leader Sudhanshu Mittal has also been a kingpin in the Corruption Racket.

Almost Rs 60,000 crores ( $13 billion ) were spent on the Commonwealth Games in which Indian Beggars were sent packing off the make India look good.However the crores were plundered by unscrupulous persons without fear of retribution.It will join the long list of Corruption Scams without anyone being punished.A Top Indian Government Accountability official called 30% of Indian totally corrupt and this sees to be a living proof of that.The shameless and blatant corruption taking place belies India’s growth story.Increasing Income Disparity,Corruption,Failing Institutions all are giving rise to virulent and growing domestic terrorism.

Tax sleuths begin hunt for Games loot – India Today

Beginning the hunt for the alleged loot in Commonwealth Games (CWG) projects, tax sleuths on Tuesday raided 23 premises and surveyed seven others in the National Capital Region, Chandigarh and Ludhiana.

The raids – aimed at unearthing corruption in overlay contracts worth `630 crore awarded by the organising committee (OC) – were carried out on a company linked to BJP member Sudhanshu Mittal and three other consortiums. Income-tax officials disclosed that the transfer of money using the Mauritius route in certain contracts was also being probed. The investigation includes tax evasion, over-invoicing of goods and services supplied and real or benami ownership of the entities concerned.

Large volumes of documents and tender agreements have been seized and the searches will continue, he said. The income-tax department had recently gathered information on the award of contracts for the just-concluded Games from the Organising Committee, the Central Public Works Department (CPWD), Delhi Development Authority (DDA) and New Delhi Municipal Council (NDMC). According to official sources, the government departments were served notice, seeking information under section 131 of the Income Tax Act. Sources said Parliament’s Estimates Committee which probed the CWG scam has prepared an interim report.

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