Friday, April 11, 2008

Bull Banking

Today, India is banking on bulls, there has never been a time when this country has needed bulls as badly as now..not in the green(agriculture) revolution not in the white(milk) revolution.

Let me elaborate..the Indian corporate sector is by and large heavily "invested"( primarily otherPeoplesMoney) in massive growth plans. Corporate India is united in its commitment to eradicate gravity in growth, projections and share price movements . These companies are heroically led by assorted "promoters" who have significant egos to promote and no regulators to fear.

The last few years were the shining years for all such ambitions..
Announce plans -> shares move up(ok, make 'em) -> can borrow more -> bigger plans -> higher share price -> more borrowing capacity -> still bigger plans -> still higher share prices .. it was intoxicating.( sigh, it seems like only yesterday *Parsvnath*(who?) announced investment plans for Rs.60,000 crores , about $15B..that was a day I was proud to be Indian, we were second to none in testosterone).

..and then these bulls failed us, failed the promoters, failed corporate India, failed the "investors" , in fact failed this Country.

What was the promised land ?
Every "promoter" and his younger brother had borrowed every bank into the brink( only foolish RBI limitations and priority sector requirements kept these banks from delivering all their deposits to the "promoters" newest, shiniest megaloStupid,growth oriented "promotion".)
For all these ensuing shining years their CAs have been hard at work churning out (nonExistent) profits quarter after quarter, much to the delight of the applauding media and "investors", purely on the basis of hiding all current expenses in their mega growth investments. After all why operate in a Third world country if you cannot hoodwink random SEBIs, RBIs , NSEs etc. into believing any crock that you can think up. Come on, these hard working "promoters" have to justify the risk premiums commanded by third world "emerging market" corporates and I feel they do a fine, largely unappreciated job of it.
The Banks of course, just could not lend enough to SEZs , Retail, Real Estate, Brokers and all such growth oriented jackpots and finally resorted to paying interest to encourage offtake.(This novel business growth strategy was predictably pioneered by ICICI Bank(of DRIP fame) who somehow even showed quarterly profits on such loans).
The investments were thus soaring, employment was soaring, wages were soaring, stocks were soaring, property was soaring, promoters were soaring ..the country was soaring.
There were bulls every where : stock markets, properties, retail, SEZs , cricket , International flights, hotel lobbies, cocktail parties, gent's couldn't step out of your house without bumping into a couldn't slow your car without irritated honks from the bulls.

Where are we now?
The bulls spoiled the party. They grew feathers and just turned chicken.
Their snouts turned to beaks and the previous heroic bullheadedness petered into unseemly flighty behavior.
The bovine strength on which the entire future of the country was being built was emasculated in a few quick weeks.
To be fair, everyone pitched in to try and grow new balls for the bull.. the media ,the financial "experts" and "advisers", the finance minister ( he actually tried to get banks to cut rates a few weeks back), the prime minister ( managed to emit some muffled "strong economy" and very "good growth prospects" when SoniaJi prodded him), the few clueless hedgeFunds and PE wees who still bought into the "corrections" every week till their offshore masters finally corrected their "vision"..but to no avail.. the bull just wouldn't get up.

What about the "promoters" ?
They are suffering and unfairly so.Their back breaking, endless hours spent rigging share prices, passing board resolutions for share buy backs, unlocking values for new subsidiaries ( more IPOs), arranging Indian currency/foreign currency / any currency debt against their enhanced equities and fresh debt to finance the enhancing of equity, launching new, negative margin, maximum market share businesses every monday..all this effort looks seriously threatened by the obtuse bullheaded refusal of former bulls to play bull!!
These promoters and their ilk have sacrificed profits and accounting principles in favour of investing in growth well beyond their reach and financial means(er,by a very long shot) just so the country could live up to the expectations of the BRIC report by 2050 and are now being held hostage by a particularly slow thinking critter.
This is doubly unfair as 70-80% of their "projects" and revenues are in the investing stage and 100% of profits are (as usual) in the just cannot pull away finance now..without the IPOs and the loans who will fund these "planned" investments of billions and billions.

What about the banks?
The banks are essentially employment shops for the chronically mediocre and the below average "people skilled" careerists who easily deceive themselves they understand "industry" and other economic activities.
Thus, being coaxed to believe that a country's economy is manifest in the banking sector, they took special pride in facilitating the growth and personal ambitions of the semi literate first gen(and papa financed second gen) "promoters", who thought they were playing the banker while the banker thought vice-versa. This was funny and convenient till our bulls caught the bird flu.
Bankers, by definition mediocre and thus unwitting big bag holders, suddenly find themselves having been handed jumbo bags in India..the chimpanzees they been shovelling funds to, instead of completing and revenue-ising (different from profit-ising which, of course, is blasphemous in corporate India) a project they originally funded..were seen to be spread thin over 23 new, different, more ambitious and more growth oriented projects which all go live in some convenient future(of course without cost or time overruns) and need massive more funding and the ownership structures as well as financial engineering involved changed every mealtime which nobody anymore understood, cared or even believed.

Today,the Promoters (and thus the country) is banking on the Banks and the banks are banking on the Bulls.

Perhaps, a solution?
The central government, in a moment of rare clarity, decided to attack the root cause rather than apply superficial BandAid to the symptoms..rather than try get the bulls on their feet with piecemeal efforts like rate cuts/ tax cuts etc. a novel and grassroot approach planned is to use the Polio Drops network to administer all adult males in the country with 1 oz of concentrated testosterone (fund managers get 4 oz ) to perk up the flagging libido dogging the financial markets in this country.

Predictably though, Reliance Life Sciences has been awarded the contract to supply the hormone as they have recently "discovered" vast quantities (also as usual, company officials refused to comment).

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