Mixing Political Interests with National Interests – The big PSU Scam !

Samuel Johnson made this famous pronouncement that patriotism is the last refuge of a scoundrel on the evening of April 7, 1775

The favourite hobby of UPA politicians is to justify decisions made for their narrow Political Interests as National Interests, and benefit handsomely from this.

Take the 3G scam… Can anyone believe that only Mr. Raja benefited from it?

Every Indian knows that politicians take cuts … what they detest is the fact that even after taking cuts these politicians cant get the work done, so much so that they are ready to forgive if they see tangible on ground benefits . Take the case of the Late Pramod Mahajan, a witty minister with dealings with Reliance Tele, who ushered in the telecom revolution, which cut per call rate from Rs 20 /Rs 16 to Rs 1.

Currently the Congress UPA is playing the National Interests card to rob the taxpayer, the average citizen and moreso the small shareholders of multiple navratna PSUs and  the policyholders of multiple psus like the Life Insurance Corp of India, which has now become the unofficial bailout mechanism for the disinvestment ministry.

Thankfully activist foreign funds that have invested in such firms, who have nothing to loose, are taking on such company managements and the government, a luxury most Indians cannot afford as they fear the draconian enforcement establishment and harassment mechanism the govt operates.

The Children’s Investment Fund (TCI)  will file a legal suit against Coal India’s board in the next two weeks in additional to the law suit against the government of India under the UK-Indian bilateral treaty.

The nononsense CIO of TCF Chris Hohn added:

The only relevant thing will be the public interest. There is a concept of the rule of law, which is that nobody, including the government, is above the law.
So, if the government advertised that they wanted to give away 2G licences to telecoms for free, that’s not legal. Even if they put it in the prospectus, even if they tell everybody, it’s not legal. Our legal case will revolve around public interest.

Sooner or later the people of India will realise that the system is ripping them off and benefiting only a handful of wealthy industrialists. We think that FSA coal pricing system is encouraging massive corruption within India.

This video is worth watching…



India Union Budget 2012/13 What matters most!

Thanks to the total failure of the UPA 2 Govt to govern, the problems i had talked about  in India Budget 2011/12 What matters most! have only worsened.

Fiscal defect is 1.3% higher than estimate… Wow!!  something which will have to be funded by market borrowing. Reduction of Inflation due to base effect offers little relief to the aam admi who is finding the burden unbearable.

Indians are facing deeply entrenched inflation, tight liquidity, high interest rate, industrial slowdown, zero reforms and negative market sentiment that have lead to Stagflation for the last few months, something which will worsen in the coming months if govt doesn’t get its act together.

Pronob is known as the chief troubleshooter and problem fixer of the Congress upa govt …  and this seems to be  reflected in his budget.


Income upto 2 lakhs                          Tax payable   Nil
Income upto 2.5 lakhs                      Tax payable   Nil for Senior citizens 60 yrs and above
Income 2 lakhs to 5 lakhs                Tax payable  10%
Income 5 lakhs to 10 lakhs             Tax payable  20%
Income above 10 lakhs                    Tax payable  30%

Senior Citizens with no biz income freed from advance tax burden

10,000 bank interest tax-free. (Old Sec 80L revived)

Cost of preventive health checkup upto a limit of Rs 5000 permitted U/s 80D.

New Adult Duty free goods limit is Rs 35000/- , for Child upto 10yrs  Rs 15000/-

Sale of residential property exempted from capital gains if invested in equity or equipment of an SME.

Disappointment for lower and middle middle class with income upto 5/6 lakh who face a double whammy of the biggest tax i.e. high Inflation and overall higher prices due to increase in fuel prices, customs duties and service taxes . Increase in the tax free income far to low and should have been at-least Rs 2.5 Lakhs considering inflation. 

Financial Responsibility and Subsidy Reform Proposals

Fiscal deficit in 2011/12 revised to 5.9% of GDP from 4.6% of earlier target.

Fiscal defict 2012/13 to be at 5.1%

FY 13 net market borrowing at Rs 4.8 lakh crores

Gross tax at 10.6% of GDP

GDP expected to grow at 6.9%

Current account defict to be at 3.6%

Economy to grow at 7.6% in 2012/13

Central subsidies to be under 2% of GDP

To bring down subsidy to 1.7 % of GDP in the next 3 years

To roll out computerized scheme for fertilizer subsidy transfer

Direct transfer of subsidy for kerosene initiated

Pay market rate for LPG Cylinder, direct transfer of subsidy for  LPG

Remove bottlenecks in agriculture, energy, transport, coal, power and national highways

To become self sufficient in urea production in next 5 years

How credible are the numbers ? Taking into consideration the pathetic track record of the UPA  can one sincerely believe in the estimates especially on govt borrowings ?  Fuel subsidy allocation not realistic.

All talk and repetition of promises, but no real concrete action on fiscal consolidation or dealing with burgeoning subsidy. No action on dealing with supply side issues only repetition of promises. No vision to change the spending pattern from consumption to investment.

Reform Postponed

DTC implementation deferred for one more year

GST to be operational by August 2012

White paper on Black Money

Capital and Debt Markets Proposals

 STT on delivery cut to 0.1% from 0.25%. 

Rs 30,000 cr divestment target in FY 13

PAN for identification of Investors and tracking evasion.

Central KYC database.

Rajiv Gandhi Equity (Tax Exemption) Savings Scheme with a lock in of 3yrs for new investors investing Rs 50000 on income below 10 Lakhs.

Change in IPO guidelines to promote small town participation

Recapitalization of PSU banks

Rs 10000 crore of tax fee bonds for power sector

Will allow external commercial borrowing for power, housing road construction companies

Govt doubles allocation for tax-free bonds to Rs 60,000 crore for financing infrastructure projects in 2012/13

To allow qualified foreign investors in Indian corporate debt markets

Dull/drab and a major disappointment to market participants,  I doubt if two bit schemes like Rajiv ESS will revive the govt disinvestment program which is in doldrums. All said and done people have to make money out of govt IPOs and tax exemption with a 3 yr lock-in is meaningless .

Fact:  1 yr plus return on govt IPOs: Punjab n Sind bank -31%   SCI FPO -50% SJVN -20% PTC finance -43.5% MOIL -26.5%  Equity / Large cap MFs 1 year return are negative.  Gold ETF has returned +29%  that after the cool off in gold prices.

Indirect Tax Proposals

Service tax,  Excise duty now 12% up 2%

GOLD bar duty doubled, increased to 4% and 10%

Negative list for Service tax introduced .

All services will be taxed except those in a 17-item negative list including  Govt services, school education, renting of residences, public transport, animal husbandry, agri produce. Healthcare, charities, sportsmen, car-parking are exempt.

Cost of everything will go up by 4 to 5% as businesses pass on the hikes…Gold , Cigarettes, bidis, Diamonds, bicycles, luxury items, eating out, white goods like AC and fridges. Even telephone bills are set to get more expensive.

Hiking duties on gold is a desperate attempt by a govt to curb investment in gold. This will make little difference in gold demand or asset price inflation if the govt cant curb its rash spending and resulting inflation expectations especially when EU and US are in low interest rate and QE mode and markets give sustained negative returns and an investor tries to protect his capital. 

All in all this budget hits the lower middle class and is most inflationary especially for the middle to lower middle class single income multiple kids household with an income of 2 lakh who sees no benefit from income tax rebate but has to pay double for his gas cylinder and between 2% to 5% more on every good and service from telephone to food to branded items.

ONGC Auction and its implications.

The ONGC auction process has been so opaque and confusing that one can safely assume some jugaad    by the Finmin /Disinvestment Min, to ensure that it attained the Fully Subscribed  status.

My points to ponder

1.  Considering that the primary subscribers to the issue were in any case PSU entitys it clearly shows that the govt cant even manage to get its act together.

2. All said and done if  the ONGC share price does not climb and  hold above the auction price at least for the next few days this whole exercise will be a futile and shallow venture because it will dent the sentiment even further.

3. Such stuff reminds us as to why the retail participation in the markets is negligible  and why politicians consider the markets as gambling dens … They are primarily responsible for making the markets into gambling dens, thanks to poor accountability and the repeated instances of the regulator  bending to political pressure to accommodate cronyism.

4. What will LIC return its investors this fiscal year ? and is it advisable to review the decision of buying an LIC policy in the long run considering the fate of UTI64 which was govts favourite bailout tool used by the congress etc.

5. Do we expect a total stop to more PSU IPOs and FPOs by the government? Considering the fact that the last batch of govt paper issued is still sitting at a 35 to 60% loss or discount .. Which retail investor will have an appetite to subscribe to let alone hold over the longer term any govt paper?

MCX IPO Update

MCX IPO is about to set a record in terms of demand.. Over subscription is .. appx 43 times as of now. These are Approx figures and i cant confirm full details or my source…

QIB portion 41 times +

HNI 119+


Do i worry cause Emp is only .16%

Total OS  is heading to 50 times

This party shows me the lack of good investing avenues for retail investors and worrys me as to how bad the investment climate is overall ..

MCX IPO review

MCX is as in common parlance a commodity mandi … an exchange that facilitates people to deals in different commodities.

Here are the details : NSE LINK Here  Chittorgarh Here

Symbol – Series MCX EQ
Issue Period Feb 22,2012 to Feb 24,2012
Post issue Modification Period Feb 25,2012
Issue Size Public offer of 6,427,378 equity shares of Rs. 10
Price Range Rs 860 to Rs 1032/-
Market Lot 6 Equity Shares
Minimum Order Quantity 6 Equity Shares
Maximum Subscription Amount for Retail Investor Rs.200000
IPO Market Timings 10.00 a.m. to 5.00 p.m.
Book Running Lead Manager Edelweiss Financial Services Limited,Citigroup Global Markets India Private Limited and Morgan Stanley India Company Private Limited
Syndicate Member Edelweiss Securities Limited,SMC Global Securities Limited and Sunidhi Securities & Finance Limited
Name of the registrar Karvy Computershare Private Limited

At the upper price band of Rs 1032, P/E works out to18.1 times nine-months annualized consolidated EPS and at the lower price band of Rs 860, P/E stands at 15.1 times. The scrip will be listed only on the BSE …………. Capital Mkts

There are no Exchanges listed in the Markets yet… This is the first one and by its very nature would at this given price and time sound lucrative to a short term trader wanting quick listing gains. <

The price is all right and the main intention for dilution by FT India is to comply with rules and give an exit opportunity to existing shareholders. Listing gains are a certainty.

On a longer term basis i think this will be a good trading bet giving people an opportunity to ride the commodities cycle.

There are multiple reviews online that give it a Strong BUY rating, while the kerb mkt is supposedly giving it a healthy unofficial premium.

Read : Capital Markets,    SP Tulsian

The major risk here is the risk to its margins that are mainly derived from trading volumes. I.e. Policy risk be it arbitrary policy action like the risk of govt banning trade in certain commodities or the risk of  CTT  being imposed in the upcoming budget .  Also the fact that it will only be listed at the BSE is a slight negative in terms of trad-ability.

Is India`s disinvestment without policy reform any good?

The govt has done policy hari-keri and has over borrowed to the hilt and will stare a big hole in its balance sheet as slowdown and stagflation hit the economy and bite into its tax revenues.

The only real tool or magical rabbit up its sleeve is disinvestment.

But will disinvestment increase public wealth or decrease it that too when there is no policy reform and prudent management  accompanying it? MPs are running PSU Firms like their private vote bank generating fiefdoms under the public good bogey!

Small investors have seen their money and their fair share in profits  being usurped by a government in the name of public good in firms such as ONGC, GAIL and OIL.

Its last disinvestment stunt is a disaster with stocks all down 35% to 53% (SCI) from IPO or FPO prices, so is it prudent for long term investors (holding more than a year) to repeat their mistake ?

Is this Congress UPA govt promoting a flipping culture among investors ? And what signal do small investors  get if the PSU share prices crash a few weeks after listing just like IPO s from private firms at  dubious  valuations that abound the markets ?

The Merchant bankers are a greedy lot, and what credibility do they have when one of the listed entities, Edelweiss is itself quoting at  71% discount to its IPO price and most of the IPOs promoted by ENAM in 2011 the most reputed of the lot are trading below IPO price.

UPA celebrates as SCI teeters on the brink of financial collapse.

As the Shipping Corporation of India celebrated its golden jubilee today, our economist PM Mr MmS of Shanghai dreams fame was in Mumbai.

Read PM gifts Mumbai a traffic jam

The govt last week, had given a full page Times of India advert with photos of the UPA high and mighty and the board patting its back and commemorating the golden jubilee of SCI.

The same paper carried an article quoting Vijay Chibber, financial adviser and additional secretary in the shipping ministry, who warned the government of the financial condition of Shipping Corp. of India Ltd (SCI) in a note titled, “Alarming financial health of SCI”. The report maintains that, according to Chibber, SCI will be in the red from this year, if the interest income and income from sale of assets is excluded.

SCI on brink of financial collapse, Ship Min raises alarm

SCI like the OIL psus is a sterling example of the callous attitude of the govt about its finances and about the health and mismanagement of its flagship PSUS  and a tale of how the govt robs small shareholder.

The SCI stock is quoting at 83 and has recently made an all time low of 78 , almost 50% down from its Dec2010  fpo price of 140.

Earning Per Share (Rs)

March 2009 :  22.21

March 2010 : 8.90

Qtr Dec 2010 : 2.64

Qtr March 2011 : -0.13

This performance is a clear warning to small investors not to invest in PSU issues especially with a long term investment horizon.

LnT Finance IPO

Larsen and Tubro is out with the ipo of its subsidiary LnT Finance.

Symbol – Series LTFH EQ
Issue Period July 27, 2011 to July 29, 2011
Post issue Modification Period July 30,2011
Price Range Rs.51 to Rs.59
Discount Employee category Rs 2.
Face Value Rs.10/-
Tick Size Re. 1/-
Market Lot 100 Equity Shares
Minimum Order Quantity 100 Equity Shares
IPO Market Timings 10.00 a.m. to 5.00 p.m.

As on 27 July 2011 at 1700 hrs the the issue is subscribed 0.3 times.
In my view, for the small investor this high quality IPO on the face of it looks buy-able at the lower end of the price band and an avoid at the higher end. One can take a bet by subscribing at cut off and subsequently taking a call when the book closes and withdraw their bid if it closes at the upper end of the band i.e. Rs 59 because listing profits are going to be slim or negligible in short term especially in such a volatile market.

The KYC muddle – Cant I exist in peace ?

In the good old times, no one  questioned your existence whenever you needed to get rice, open a bank account , get a telephone or get a gas connection or buy a fixed deposit or mutual fund. It was a much slower process and waiting and lines were a norm. But there was no denial of service and thanks to the Indira Licence permit raj, speed money for everything was a norm.

There was the ration card with your entire family serially listed init in a local language with fancy spellings of names and that was about all one required to prove their identity. Ok there was the odd school and college id but no one really bothered. A passport was only for those that aspired foreign trips. GIR  was for filing tax returns.

The 90s bought Rupee devaluation and a sudden change from the Nehruvian 4% growth rate or a policy of socialist slumber,  as a payments crises and the terms set by the IMF  ushered in the liberalization policy under the Late P. V. Narasimha Rao govt. Nonetheless it made Mms famous as the great liberal (something which his current regressive policy action  has proven to be wrong)

The nation faced competition and a collective Identity crises as there was upheaval as MTNL  started providing an on demand telephone connection  … something unheard of in previous years.

Holy shit we were starring at Consumerism! The Sacred ration card became irrelevant as people could buy and more importantly afford to buy rice and other controlled things at the markets, that too free of adulteration.

The era also brought it with more regulatory bodies like the SEBI (1992) that brought on the mad rush called KYC or know your customer.

FATF on http://www.fatf-gafi.org KYC is not an option, but a global pressure, that is mindlessly implemented in India.

Each agency demanded and created their own I.D proof and insisting that people adhere by it. We evolved to becoming a more complicated polity who needed a documents galore to prove identity and existance.

1. Birth Certificate / School leaving certificate / College leaving cert etc and the  School, College, Work ID etc

2. Ration Card

3. Passport

4. Election Card

5. PAN card

6. Senior Citizens ID (for the extra .5% on fds)

7. Mutual Fund KYC by CVL

8. Finally the UID

I didnt mention MAPIN or Markets Participants and Investors Identification Number(which came and went)

We need at least a combination of 2/3 of these documents to partially prove our identity. For following KYC norms one has to be ready with the originals and xerox copies of not only these but also the latest

Gas / Electricity bill ,

Rent bill,

Telephone bill

Bank statement

Society managements letter.

That too in your name and living on rent, as a paying guest or with your family wherein their bills are sometimes no good and subject to the whims and fancies of the staff accepting your documents.  ( strangely 70% of people live in slums)

Remember each and every bank  now demands KYC  never mind if you have held the bank account or the fund for more than 2 decades and are a good friend of your bank manager makes no difference. They will freeze it if you dont .


Mutual fund have their KYC process but that is not enough, every form needs to be accompanied with a copy of both the CVL kyc acceptance and PAN.

Read mutual-funds-untangled

Post offices are unique cause their kyc process needs to be repeated every time you open an account …in triplicate or duplicate .

And one more thing KYC is an ongoing process where banks can demand documents repeatedly on a 2 /3 /5 yearly basis.

It makes sense and saves costs to keep a stock of multiple copy s of the above mentioned documents and photos because you need to repeat the same process at every single  bank, post office, mf etc

Miss one of the documents, or if it has errors  and you could be denied for no fault of yours.

Read : Denied passport for being an orphanMid Day

Its not enough to exist with the complications of daily life,  like competition, the servant that bunks work when you most need him/her, the problems of the nuclear family, shopping from the supermarkets as grocery shops have almost vanished from the area etc.

In the end, does it prevent Money laundering or the fraud or the crook ?

The simple answer is no…


Because it never prevented scams and scandals… We had scam after scam after scam and if that was not all a book by Sucheta Dalal n Debashis Basu called The Scam.

Read Sucheta Dalal :10 years of financial scams

The DIKs of the world still did their business of smuggling narcotics and terrorist support, and investing in property markets, share markets etc and still do.


Because we don’t have stringent laws against serious fraud or the will to take on the fraudsters… No class action lawsuits against cheaters and fly by night operators and no speedy trials …Heck most of these folks have political connections .

Take the Satyam/Maytas case wherein Raju committed fraud (some say it was induced by Andra Pradesh state elections) and was politically protected, and Indian shareholders to add insult over injury, had to pay off US Shareholders who banded up against Satyam in a class action suit. Big name independent directors like Harvard professor Krishna Palepu and ISB dean Rammohan Rao and Dham(The Pentium chip) didnt make a difference.

The scamster can easily get fake documents or bribe the staff or for the more sophisticated, route his investment through havala , tax havens or swiss banks, of course it is all possible tax free if one routes investments via Mauritius.

Better still he can follow the (rumored) lead of big Maharashtra politicians who use people like Hasan Ali to do their dirty work, which explains why the govt has been dragging its feet on identifying black money.

Read ‘Supreme Court order on black money is unique’

Supreme Court sets up probe into black money | Reuters

Dealing with IPO Shares

If u consider stats the best thing to do is to flip an IPO because that will be the only way you make money 2 out of 3 times u invest.

Business Standard has this great article on the underwriting business of the Ibanks and how their issues/ IPOs have fared.

(For IPOs since Jan 2007)
Enam Securities 16 30 30 16 46
Kotak Mahindra Cap 15 31 30 16 46
ICICI Bank 7 18 15 10 25
SBI Capital Markets 7 17 16 8 24
JM Financial 5 16 15 6 21
Edelweiss Capital 4 15 16 3 19
Morgan Stanley 3 12 11 4 15
Keynote Corporate 6 9 8 7 15
Citi 8 6 6 8 14
IDFC Capital 4 10 10 4 14
Total 75 164 157 82 239
(Figures in numbers)                     Source: Bloomberg                             Compiled by BS Research Bureau

An investment banker said on the condition of anonymity that “it is difficult to say who takes the pricing call — the company or i-banker as several PSUs are influenced by the broader market and many have not done well. PSUs are supposed to leave something on the table for retail investors.”… BS

Points to ponder

1. PSU shares are no more safe bets cause most PSU Issues are under water.

2. IPOs are managed (especially small issues) and operators exit soon after the issue lists, landing hapless small investors  with losses.

3. High IPO Rating does not meen the issue is good. The price at which the good company is selling share is the determining factor.

So Caveat Emptor