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Promoters

Is the Govt of India like Goldman Sachs?

Consider the following actions of the Govt of India:

Govt of India auctions a block on ONGC on 1st March, 2012.Two weeks later, the same Govt announces an increase in cess on oil production from Rs.2500 per tonne to Rs.4500 per tonne.As per RS Sharma,former CMD, ONGC,  “The cess hike will have a bearing on ONGC’s revenues to the extent of Rs 5,000 crore per annum”

The timing of the govt. for the ONGC sale was good, not so for the investors who bought it.

This is similar to the actions of Goldman Sachs.Goldman Sachs sold structured products to investors knowing that they would blow up and in some cases, it actively bet against the same products.

Such sharp deals by Goldman Sachs,Lehman Brothers and their like led Warren Buffet to label them as a “carny”

A carny is  a carnival barker hawking rigged games to tempt cash out of unsuspecting bystanders.

The Govt of India by acting as a “carny” has done itself no favors especially when it has huge disinvestment plans lined up (30000 Crores for this fiscal)

Contrast this sort of behavior with that of the Tatas.

Ratan Tata took TCS public in late 2004.Many times he was asked why did he wait so long, considering that during the late-1990s software boom TCS’s revenues were growing at nearly 60% a year, twice the current rate?

Here is his classic reply (which would have made JRD proud):

“There was a moment six years ago when we considered floating this IPO. But one concern was that the stock markets in India then were not valuing IT stocks realistically. Had we gone public at that time, Tatas being in an enviable position in terms of the money they collected, we would have left many of our shareholders dissatisfied. This was because the IT industry went through a slump [subsequent to 1990s]. We would like this share to be one that investors are happy with, where they see growth, they see enhancement of their shareholder value.”

 

The Govt of India should act less like Goldman Sachs and more like the Tatas.

Categories
Promoters

Promoters as jockeys

The late Aditya Birla started his career with Indian Rayon.After he took it over, the workers went on strike,a fire broke out and losses spiraled.

The great GD Birla whose favorite grandson was Aditya Birla incessantly grumbled:”You have mounted Aditya on a decrepit steed”

The late Aditya Birla was of course able to turn Indian Rayon into a success. (source:Gita Piramal’s Business Maharajas)

GD Birla’s comments however hold lot of wisdom.Promoters can be compared to horse jockeys.Sometimes the horse (business) is so fast and swift that they gallop all the way to success.Sometimes even the best jockey can’t do much with an old nag.

This resounds with WB’s famous saw ““When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

But there are some jockeys (promoters) who are capable of changing horses(businesses) mid-stream and achieving greater success.This is a true hallmark of an outstanding businessman.

For instance,WB started with the textile business and then later moved on to insurance which propelled Berkshire Hathaway to great success.

In the Indian context, Dhirubhai Ambani started with trading,moved to textiles, then to petrochemicals and then finally oil &gas.

Are there any current businessmen who are outstanding jockeys capable of changing horses midstream?

Such an extraordinary businessman is Deepak Parekh.He started with HDFC, launched a bank,life insurance, general insurance and other wealth creating companies.If one had bought HDFC shares when Deepak Parekh started his career, one would have had a very comfortable retirement indeed.

On the  other hand, there are jockeys who will run their horse into the ground.But that’s a story for another day !!