Global Labor Glut will keep Wages low and the 99% Poor

12 Nov, 2012 by
Income disparity

Global Labor Oversupply

What has been missed out by economists worldwide is that capital is now heavily advantaged over labor which is leading to massive inequality around the world. The reason is that Labor both educated and unskilled has risen exponentially, with structural changes like the Internet and growing prosperity in large labor pools like India and China. This has given rise to the phenomenon of white collar poverty in these countries. Millions of people are graduating each year and there are not enough jobs to absorb this graduate army. The Internet revolution has meant that traditional jobs like accounting, law, research etc is now easily outsourced at a fraction of costs. This means massive deflation in wages even in the West as wages converge gradually all over the world. This growing unemployed army is growing even larger in size each year as there are simply not enough decent paying jobs.

Chinese Low Cost Engineers Massacres Western Telecom Companies

The relentless rise of Chinese telecom equipment and OEM companies has massacred telecom jobs in the West with major companies like Nokia, Alcatel and others firing in the thousands. Note Huawei and ZTE have become the nemesis of the telecom equipment makers which are showing losses in the last few years. These companies are not managing to compete with the low cost engineer advantage of the Chinese firms . Nokia is also firing thousands in its western factories in Poland and other places as it moves production to Asian factories. Note while Nokia has become unprofitable to other causes like Apple and Android, low cost phones from Asia is the biggest factor in its demise as well.

Labor Cost Arbitrage

One of my theories is that a lot of distortions and opportunities for arbitrage that we are seeing in the world today is because “Labor is not Globalized while Capital and Trade are “. However the Restrictions on the “Globalization” or in other words Free Movement of Labor is being reduced through the following trends:

  1. Improvement in Communication and Transportation, that has given rise to Outsourcing.
  2. Creation of regional blocs like the NAFTA, ASEAN, EU etc. has allowed broken the labor barriers within the bloc between the members. This has resulted in “winners” in the form of the “poorer members labor” and  “losers” in the form of “richer members labor”.
  3. MNCs like IBM, Applied Materials with operations spread across multiple countries exploiting this situation by moving most of their labor requirements to low cost locations.

Part Time Workers growing rapidly as Companies exploit Advantage

While 2 million more workers are employed in the US than in June 2002, there are 4 million more part-time workers today than there were a decade ago. And even with these 4 million part-timers counted, there are 4 million more people unemployed now than there were 10 years ago.This means that there are 2 million fewer full-time workers today than in 2002—an unprecedented change. Over the course of the last decade there has been what can only be described as a seismic shift in the composition of the American workforce, as employers make a calculated move to bring on more workers on a part-time basis instead of hiring them full-time.

600 million jobs needed

Over 600 million jobs will be needed over 15 years, a majority of them in Asia and Sub-Saharan Africa, to maintain the world’s employment rate at current levels, says a new World Bank report.  “Technology is changing the way workers and firms connect, through their access to much larger, even global, employment marketplaces,” the report said. It also noted that part-time and temporary wage employment had become key features of industrial and developing countries.

Tamil Nadu Solar Energy Policy Review and Analysis – Why solar investors should sit up and take notice

5 Nov, 2012 by
India,Solar Energy

New Solar Energy Policy in Tamil Nadu

India’s electricity woes are known to Greenworldinvestor as we have been repeatedly highlighting the massive deficits suffered by individual states particularly in the southern India. Now these states are turning to solar power to alleviate some of their electricity issues. Andhra Pradesh’s solar policy which was enacted a month ago, gave a rapid fire clearance to solar power projects beside others incentives. Tamil Nadu has been preparing a solar energy policy for quite some time and has finally come out with a comprehensive policy which touches a number of subjects. Note Tamil Nadu is the biggest renewable energy state in India and accounts of almost 40% of the country’s wind power capacity. The strong growth has been due to the support given by the government which has made it the de facto wind capital of India. The state also has a vibrant wind manufacturing industry in the state with some top wind energy companies having their factories in Tamil Nadu.

Note opportunistic investors had already anticipated this policy and bought large parcels of land in Tamil Nadu’s sun belt which gets over 300 days of sun a year.

Why Solar Investors should sit up and take Notice

Tamil Nadu is one of India’s most prosperous and industrially advanced states located at its southernmost extreme. The state has shown remarkable progress in the  field on Wind Energy utilizing almost 80% of its Wind Power Potential with 40% of India’s total Wind Installations. With the right mix of policies, Tamil Nadu has also become the hub of Wind Energy Manufacturing with Global Heavyweights like Suzlon, Gamesa, Vestas all building plants in the State. A number of new players like Sterling Infotech and Lietner have also started manufacturing Wind Turbines in Tamil Nadu due to favorable networking effects. The state is also generates the 3rd largest amount of biomass energy with around 340 MW installed. Here are the reasons why Tamil Nadu has become the Biggest Renewable Energy State in India.

The previous success of Tamil Nadu in the wind energy sector makes the implementation of the 1000 MW a year target for 2013 -2015 look achievable. While the rest of the states announce ambitious policies for green energy,their implementation track record makes one doubt their claims. However Tamil Nadu is one of India’s most industrialized and fast growing states. Like Gujarat, the state’s governance structure and implementation record is much better relative to other states. So when TN announces a solar policy, solar companies around the world should sit up and take notice.

Hindu

Solar power equipment manufacturers, solar power generators, consumers and industry associations have welcomed the Tamil Nadu State Solar Energy Policy 2012. The policy announced on Saturday targets establishment of 3,000 MW of solar power generation by 2015, provides generation-based incentives for roof-top systems, mandates 6 per cent minimum purchase obligation from 2014, beginning with 3 per cent next year, and provides a package of incentives for solar equipment manufacturers.

Also Read on GWI:

Tamil Nadu Solar Energy Policy Review and Analysis

Title and Enforcement

This policy will be known as the “Tamil Nadu Solar Energy Policy – 2012”. The Government of Tamil Nadu will undertake a review of this Policy as and when required in view of any technological breakthrough or any changes taking place in the policy at the National level.

Key Objectives

  • To project Tamil Nadu as a Solar Hub
  • To generate 3000 MW of Solar Energy by 2015
  • To achieve grid parity by 2015
  • To encourage indigenous solar manufacturing facilities in the State

Development of Solar Power in Tamil Nadu

Phase (2013-2015)                Target (MW)

2013                                          1000

2014                                          1000

2015                                          1000

Total (by 2015)                     3000

With average solar incidence of 5.5-6 kWh/m2/day, Tamil Nadu is amongst the states with the highest solar insolation in India. To retain its leadership position, Tamil Nadu will promote setting up solar power projects to the extent of 3000 MW over a period of 3 years, as furnished above.

Tamil Nadu will actively promote the solar energy sector by prescribing a certain percentage of electricity consumption through solar energy as mandatory. This will be progressively increased.

Solar Purchase Obligation (SPO)

The State will mandate 6% SPO (starting with 3% till December 2013 and 6% from January 2014) for the following category of consumers:

HT Consumers (HT Tariff I to V)

This category will cover all HT consumers including:

  • Special Economic Zones (SEZs)
  • Industries guaranteed with 24/7 power supply
  • IT Parks, Telecom Towers
  • All Colleges & Residential Schools
  • Buildings with a built up area of 20,000 sq.m or more

The SPO will be administered by TANGEDCO.

The above obligated consumers may fulfill their SPO by

  • Generating captive Solar Power in Tamil Nadu equivalent to or more than their SPO
  • Buying equivalent to or more than their SPO from other third party developers of Solar Power projects in Tamil Nadu
  • Buying RECs generated by Solar Power projects in Tamil Nadu equivalent to or more than their SPO
  • Purchasing power from TANGEDCO at Solar Tariff
  • Consumers desirous of availing SPO exemption by captive solar generation shall necessarily install separate meters to measure captive generation

This mechanism will require generation of 1000 MW by 2015.

Mechanism to generate 3000 MW by 2015

The 3000 MW of Solar Power will be achieved through Utility Scale Projects, Rooftops, and under REC mechanism as follows:

Utility Scale (MW) Solar Roof Tops (MW) REC (MW) Total (MW)
(a) (b) (c) a + b +c
2013 750 100 150 1000
2014 550 125 325 1000
2015 125 125 675 1000
Total 1500 350 1150  3000

In utility scale out of 1500 MW, 1000 MW will be funded through SPO and balance 500 MW through Generation Based Incentive (GBI) provided by the Government.

Domestic Rooftop GBI

All domestic consumers will be encouraged to put up roof-top solar installations. A generation based incentive (GBI) of Rs 2 per unit for first two years, Re 1 per unit foe next two years, and Re 0.5 per unit for subsequent 2 years will be provided for all solar or solar-wind hybrid rooftops being installed before 31 March, 2014. A capacity addition of 50 MW is targeted under this scheme.

Consumers desirous of availing GBI shall necessarily install separate meters to measure rooftop generation.

Promoting Rooftops in Government

All new Government/Local Body buildings shall necessarily install solar rooftops

  1. Existing Government/Local Body buildings will be provided with solar rooftops in a phased manner
  2. All Street Lights and Water Supply installations in local bodies will be energized through solar power in a phased manner

Promotion of Solar Water Heating Systems

Public Buildings

The Government of Tamil Nadu has issued amendments to the Building Rules through the following Government Orders, making the use of solar water heating systems mandatory for all designated new Houses/buildings/Marriage halls/hotels etc.

Industries

Installation of Solar water heating systems will be made mandatory for industries having hot water boiler/steam boiler using fossil fuel.

Development of Solar Parks

Utility scale solar parks may comprise 250 MW in sizes of 1 to 5 MW, 600 MW in sizes of 5 to 10 MW and 650 MW of sizes above 10 MW. Solar Power projects will be developed through competitive/reverse bidding. Solar Parks with a capacity of about 50 MW will be targeted in 24 districts.

Single Window Agency (TEDA)

Various statutory clearances that are essential for the development and commissioning of Solar Energy Projects will be handled by TEDA in co-ordination with the concerned departments/agencies. Guaranteed single window clearance will be provided through TEDA in 30 days so that the plants can be commissioned in less than 12 months

Exclusive Solar Manufacturing Parks

Lands will be identified for development of exclusive solar manufacturing parks. The State will promote setting up of solar manufacturing industries in these exclusive solar manufacturing parks to be established in the State.

Preference in Industrial Parks

Preference will be given for establishing Solar manufacturing industries in the SEZs/Industrial estates / Parks viz., SIPCOT, SIDCO and similar Government organizations

Establishment of Solar Power Plants in Industrial Estates

In order to reduce the Transmission & Distribution losses, Aggregate Technical & Commercial (AT&C) losses and other infrastructure expenditure, Solar Power Plants will be set up in all industrial estates subject to availability of land at reasonable cost

Policy Initiatives

Net Metering

Net metering will be allowed (at multiple voltage levels) to promote rooftop penetration

Net metering facility will be extended to Solar power systems installed in commercial establishments and individual homes connected to the electrical grid to feed excess power back to the grid with “power credits” accruing to the Photovoltaic energy producer.

Projects to evacuate power at suitable voltages as suggested below

Solar PV System Size Grid Connected
<10 kWp 240 V
10 kWp to < 15 kWp 240 V / 415 V
15 kWp to < 50 kWp 415 V
50     Wp to < 100 kWp 415 V
>100 kWp 11 KV

Exemption from Payment of Electricity Tax

Exemption from payment of electricity tax to the extent of 100% on electricity generated from Solar Power projects used for self-consumption/sale to utility will be allowed for 5 years.

FULL REPORT FROM TEDA

Solar Gold Rush

The Indian state of Tamil Nadu, which is set to announce a solar subsidy policy soon, is seeing a massive gold rush. Note in India, the information about Government policy is generally leaked to big industrialists and insiders much before the actual government regulations are released. This gives a huge advantage to the big industrial houses who can prepare themselves accordingly. Huge chunks of land in the dust bowls of  Tamil Nadu districts are being bought for less than $6000/acre. The reason is that developers and opportunists are building up land banks to set up huge solar farms.

Global Slowdown Stark Reality – Deluge of Job Cuts and Factory Closures by Dow, Du Pont, Kimberly Clark, UBS

31 Oct, 2012 by
World Economy and Markets

Global Economy Slowdown

Despite multiple rounds of monetary easing by the global central banks and zero interest rates, the global economy continues to slow down. Top global MNCs like Du Pont, Fedex, Dow etc. are forecasting a sharp cut in their sales and profit forecasts. The companies are reacting by firing thousands of workers and shuttering plants in order to protect their profits. Europe and China have been slowing down for quite a while now due to their muddle headed debt and investment related problems. Other emerging markets which are dependent on China and Europe are also facing slowdown if not outright recession. The stock markets are starting to reflect some of the reality despite the Fed induced money high. Global Trade and debt imbalances continue to be an overhang on the economy.

Unemployment has become one of the biggest global problems as structural changes in the labor market due to the Internet are combining with the cyclical slowdown. Wages are getting cut or remain stagnant even as food and energy prices continue to climb. The bargaining power has moved to global companies who continue to feast on a global pool of labor which is highly oversupplied. The advancement of communication technologies means that work continues to move to even lower cost locations to the detriment of workers globally.

Du Pont

DuPont slashed its earnings forecast, reported a lower-than-expected quarterly profit and announced 1,500 job cuts on Tuesday, signs that demand for the chemical company’s lucrative paint and solar products is slipping around the world.

Shares of DuPont, a component of the Dow Jones industrial average <.DJIA>, fell nearly 8 percent in morning trading.

The job cuts by the company, which also makes Kevlar bulletproof fiber and Corian countertops, marks one of the more extreme reactions to slipping demand and global economic uncertainty so far in this earnings season.

DuPont’s sales fell 9 percent to $7.4 billion in the third quarter, below analysts’ average forecast of $8.15 billion.

Dow Chemical

Dow Chemical Co, the largest US chemical maker by sales, will cut about 2,400 jobs and shut 20 manufacturing plants to reduce annual costs by $500 million in the face of slow global economic growth.

The facilities to be closed are in the US, Belgium , the Netherlands, Spain, the UK and Japan, the Midland, Michigan based company said in a statement released after it inadvertently e-mailed a draft copy to Bloomberg News earlier on Tuesday.

Corning

Corning said Wednesday that it will likely cut costs, which may include “modest” job cuts, to support profit in a weakening economy.

It’s the latest manufacturer to warn that the slowing global growth is hurting its business. Weaker global growth hurt Corning’s telecommunications and environmental technologies divisions, but the company said sales of its super-strong Gorilla glass, used in tablets, TVs and other devices, were much better than expected

The glass and ceramics maker’s stock slid 5 percent, or 67 cents, to $12.74 in premarket trading Wednesday.

Kimberly Clark

US personal-care products giant Kimberly-Clark said Wednesday it was exiting its Huggies diaper business in much of western and central Europe, cutting up to 1,500 jobs.

Kimberly-Clark Corporation announced it would close or sell five manufacturing facilities and some production would be transferred to other plants.

UBS

UBS is about to cut 400 investment banking jobs, two sources familiar with the situation said on Wednesday, with more extensive lay-offs at the Swiss bank likely to follow as it withdraws from the riskier and more capital-intensive parts of its business.

Tighter capital rules and a dearth of deals are forcing many investment banks to slash costs, though big losses in the 2008 financial crisis and a rogue trading scandal last year have added to the Swiss group’s particular problems.

Indians against Corruption (IAC) becomes India’s Muddy Waters – After DLF, Indiabulls and GMR Stocks Plunge on Corruption Charges

25 Oct, 2012 by
India

Indians Against Corruption

Carson Block’s Muddy Waters has become famous for exposing the various scams and frauds amongst Chinese companies. The most famous expose was that of a multi-billion dollar company called Sino-Forest listed in Canada which counted blue chip investors like Paul Hankson amongst its investors. The exposure of deep corruption amongst the Chinese companies has led to a strong drastic fall in the average valuation of all the Chinese stocks listed in the USA.

Now Arvind Kejriwal’s Indians against Corruption (IAC) is doing the same thing though for a different motive. IAC has launched a new political party in India and is exposing the deeply entrenched graft and nepotism amongst the older established political parties like BJP and Congress. Crony Capitalism is deeply rooted in India’s economy as we have shown repeatedly here on the Greenworldinvestor. IAC is just reiterating the same about huge amounts of black money being invested in top listed stocks like the Indiabulls and GMR Group.

Note some time ago, an independent Canadian research house Veritas had come out with scathing indictments of corporate governance amongst India’s top industrial groups like DLF, ADAG and Indiabulls. Most of India’s companies have pathetic to zero corporate governance with swindling of shareholder’s money considered fair game by almost all promoters. Like all the previous scams and scandals, this will get its 24 hours from the mainstream media before dying away without any results.

Common Scams in India

India’s business houses are hardly the paragons of virtue as everyone knows. Many of the business houses are known to siphon money from the public companies to their private coffers through various legal and illegal means. It is difficult to find a company in India which has good corporate governance and the trust of investors. Investing in a mid cap and even sometimes a large cap company can be dangerous because of problems associated with corporate governance and information disclosure. Even after the fraud or malfeasance is proved, promoters and big stock market players can get away with nominal punishment like not operating in the market for X number of year. Unless the scandal turns out to be a huge one, life goes on as usual without any punishment or prosecution. Here are some of the common schemes used by companies to defraud investors:

  1. Vanishing Companies – Small companies simply vanish from the stock market. They stop reporting results to the market and the investors have no way to exit as their stock stops trading as the exchange bans the company from trading. You are literally left holding scraps of paper.
  2. Collusion between Promoters of Companies and Big Brokers – There have been many instances when promoters and big brokers manipulate the market to ratchet up the prices of stocks with no fundamentals to speak of .The instances of the “pump and dump” are too many to enumerate.
  3. Accounting Scandals – While the “Satyam Scandal” is the biggest one, PWC in a recent report estimated that a very high percentage of companies resorted to accounting gimmicks. Read Satyam Computer Services scandal
  4. Incestuous Dealings between private and public companies in the same group – Most of the Indian family groups have a labyrinthine maze of company holdings. Most of the dealings done between these companies are to the benefit of the promoter at the expense of minority shareholders.
  5. Tax Frauds – Tax Frauds are dime and dozen. They are frequent and don’t even raise much of an eyebrow. Get frequently entangled in the Indian judicial system for years.
  6. News Frauds – Somebody circulates a fraudulent letter through major news media. Stock price goes up, people in the know sell out to investors who believe authoritative news media. Read  Pyramid Saimira scam: How our business media was taken for a ride

Assocham which is India’s premier industry association however does not want to improve the corporate governance of its members. Rather it wants independent equity research houses to stop publishing the damning truth about its members. Note a Canadian research house Veritas has come out with scathing reports on top business groups like DLF, Indiabulls, Reliance and ADAG. Rather than introspect and try to improve the situation, Assocham wants to muzzle the independent unbiased voices. All the Indian and foreign brokerages and research firms are totally compromised and are unable to come out with truthful analysis.

Read more about how corruption in Indian stock markets:

ET

Shares of IndiaBulls Group companies were witnessing selling pressure in early trade after activist-turned-politician Arvind Kejriwal in his second press conference put two real estate firms — BPTP and IndiaBulls — on notice, accusing them of having investments by politicians and seeking information from the public about these firms. Shares of DLF were down 2.81 per cent on the BSE. It has plunged over 9 per cent in the past three sessions following allegations against the company by India Against Corruption activists.

On Tuesday. activist-turned-politician Arvind Kejriwal released documents against DLF that purportedly show deeper links with Robert Vadra and favours from the Haryana government, intensifying the pressure on the country’s biggest real estate group, the Gandhi family and Congress party.

Rapidly Growing Solar Pie attracts the Birlas into India’s Solar Industry

24 Oct, 2012 by
India,Solar Energy

Tatas & Birlas into SOLAR

The Tatas and the Birlas are synonymous with industry in India being the oldest and biggest industrial groups. While the Tata Group is a single monolithic industrial group, the Birla group is divided into a number of different sub groups headed by different Birla family members. The Aditya Birla is the biggest such offshoot of the erstwhile Birla group. This has attracted almost all the big Indian conglomerates like Mahindras, Tatas, Reliance etc. Solar Companies in India are growing each day as more and more organizations look to capture the rapidly growing Solar Pie. Solar Energy in India is one of the biggest energy opportunities in the 21st century due to the following reasons.

Reasons for Investing in Solar in India

India has very high insolation (solar radiation in layman language) which makes solar energy much cheaper to produce solar power in India  compared to  countries like Germany, Denmark etc. Germany despite receiving only 50% of India’s Solar radiation has more than 9 GW of solar energy capacity already installed and is going to probably hit 14 GW by 2010.

India has a huge electricity demand supply gap – Large parts of India regularly face blackouts for lack of electricity supply leading to huge monetary losses. It has been estimated that India suffers from more than 15-20% supply shortage in times of peak power. Major cities like Gurgaon regularly face 8-10 hours of power cuts in summer months.

Lack of power grid availability – Solar Energy is ideally suited for providing power to those areas which do not have power lines connecting it. Large parts of India do not have electricity grid connectivity and it is cheaper to power them through solar energy rather than extending power lines.

Increasing expensive and unreliable electricity supply – The rates of electricity prices are going up rapidly each year due to a combination of factors like higher costs of fossil fuels, increasing capital expenditure by utilities and privatization of power. Not only is the power expensive, the quality and reliability of the supplied electricity is very poor. A study has found that poor farmers who  receive “free electricity” in India  are willing to pay for quality electricity supply rather than do with the “unreliable free power”.

Solar Energy approaching Grid Parity – The costs of Solar Energy has been decreasing rapidly over the last 2 years. Despite solar energy prices being higher  than other forms of electricity, it is expected that solar energy will equal that of grid prices in the next 5 years in most parts of the globe. Solar Energy is the only form of Energy whose cost trend has been declining over the long term while all other major forms of energy have seen their costs increasing .

Strong Support from the Government – Solar Energy needs a push from the Government in terms of regulation and incentives as it is a costliest form of power currently. The Indian Government through the Jawaharlal Nehru National Solar Mission has provided strong support to the growth of this industry. The Government has set a  target of 20 GW by 2022 with 1000 MW of solar power to be set up through private investment by 2013. CERC guidelines aims at providing  20% + returns to private investors through a higher guaranteed rate to electricity generate from solar power ( FIT).

Solar Energy is a Non-Polluting Green Form of Energy – The biggest advantage for solar energy is that it is a non-Carbon Dioxide emitting form of power. While other fossil fuel forms of Energy have large unaccounted costs in terms of pollution, health hazards, global warming and environmental destruction (BP Oil Spill), Solar along with other forms of Renewable Energy have none of these harmful effects.

Solar Energy is virtually Unlimited – While Coal, Gas, Oil are eventually going to be depleted over the next 20-100 years, Solar Energy is a virtually unlimited source of energy. The amount of Solar Energy striking the earth is much more than humans will ever need.

Aditya Birla to invest more than $1 billion in India’s Solar Energy

The Birla Group was missing the Solar Growth Story and now the AB group has rectified this by unveiling an aggressive expansion plan into India’s solar industry. The company has acquired a stake in a solar power plant in Gujarat and is setting up a solar farm in adjoining Rajasthan as well. AB Group will invest $1 billion in the next 5-6 years with plans of setting up 100 MW of solar plants in the next one and half years. It has already hired top management from European solar companies and the investment will flow through Essel Mining which is privately owned by the Aditya Birla himself.

ET

The $40-billion retail-to-telecom conglomerate has acquired a minority stake in a solar power venture promoted by Electrotherm in Gujarat’s solar park and struck a long-term leasing agreement with Refex Energy in Rajasthan to operate a solar plant at Bithuja in Rajasthan. These units have a capacity to produce 1.55 million units of electricity per mw annually.

“We have set a target of $1 billion over the next 5-6 years,” he added. Essel Mining, the unlisted firm owned by Aditya Birla group chairman Kumar Mangalam Birla, is in the process of setting up an independent company as it seeks to develop a capacity of 100 mw over the next 18 months. The group has so far invested a little more than Rs 200 crore to develop 20 mw capacities in solar power.

Corruption leads to decline in India’s Biggest Real Estate Stock DLF – Indian Realty as Corrupt as Ever

19 Oct, 2012 by
India,Real Estate and Construction

Corruption has become quite endemic in India over the last decade or so and it is universally recognized that the present regime in India is the most corrupt in history. However the flow of scams has not stopped. Realty is the most corrupt industrial sectors in India due to its unorganized nature and huge scope for making money through circumventing governed rules and regulations. Real Estate Companies are amongst the worst performers over the last couple of years and the biggest real estate companies have been embroiled in major scandals. Unitech which is India’s 2nd biggest realty company was involved in the telecom scandal. DLF the biggest real estate company has been involved in a number of corruption deals as well.

Now it is again in the highlight as allegations have been raised that it gave sweetheart deals to the son-in-law of India’s ruling Gandhi family. The stock has tanked 5% as doubts were raised about its corporate governance. Note DLF had seen a similar decline when an independent equity research firm in Canada had raised concerns about the company’s poor corporate governance relating to shady related market transactions. The company has also been indicted by the monopoly regulator for fleecing customers of its top residential luxury project in Gurgaon. Realty Investing in India is always a dangerous game with real estate firms involved in all sorts of corruption scandals. Akruti City whose  shares had seen a massive rise some months ago has been implicated by SEBI for  rigging up its share price with the help of a “stock market operator” Dangi. I would have though that these white collar crimes should be punished more stringently. Banning some entities without any jail time will lead to more and more of these stock rigging in the future.

Realty Shares fall on Corruption Concerns is a regular phenomenon

Shares of LIC Housing Finance Ltd., along with those of realty companies Hindustan Construction Co., Oberoi Realty Ltd. and DB Realty Ltd. plunged early Thursday after the companies were named in a loan scandal late Wednesday. The Central Bureau of Investigation Wednesday arrested eight people, alleging they took huge bribes to issue corporate loans. The arrested include four senior bankers at state-controlled lenders, three from a financial services firm and one from India’s largest insurance company. The CBI alleged that the loans in question were given to companies including Lavasa Corp., a unit of Hindustan Construction, Oberoi Realty and DB Realty, as well as some other listed and privately-owned companies.

IBN

Shares in DLF dropped after anti-corruption activists accused the country’s biggest property developer of improper dealings with a member of a prominent politician’s family, prompting denials from the company. The shares were down 3.8 per cent as of 9:59 am, after falling as much as 5 per cent. The benchmark BSE index declined 0.26 per cent.

Activist Arvind Kejriwal, along with colleague Prashant Bhushan, accused DLF on Friday of arranging favourable loans and real estate transactions for Robert Vadra – the son-in-law of Sonia Gandhi, chief of ruling Congress Party. DLF denied the allegations.

Note many stocks have declined sharply in recent times due to their association with tainted businessmen and politicians. Investing in Indian stock markets remains as treacherous as ever as figuring out the equations of crony capitalism is more important than the fundamentals. Here is an earlier article about how to invest in the Indian market where management quality is a choice between Bad and Ugly

Any investor will tell you that the management quality in India is pretty bad with the choice mainly restricted between Bad and Ugly. Though there are some of the better business groups and companies like Infosys, the management quality leaves a lot to be desired. This is a reflection of the general system of the country where endemic corruption is present with politicians and bureaucrats indulging in scam a day, I think the quality of the management plays a big role in the long term returns of the stock. It is highly unlikely that the company stock will give you good returns as the management siphons off the profits and cash through various shenanigans. Management whose past behavior reeks of corruption will unlikely change its behavior in the future and might lead to catastrophic losses as well as was the case with Satyam.

Read More about Real Estate Corruption

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