Are We Out Of The Woods Yet?

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The tale of A Satyam Computers

In what promises to be India’s biggest corporate scandal till date, Mr. Ramalinga Raju, founder and chairman of Satyam Computers, one of India’s four premier IT companies, admitted of a fraud through a letter addressed to the board of the company. The controversial and seemingly absurd acquisition proposal of Mytas, an infrastructure company of Satyam promoters by Satyam computers a few weeks back suddenly started making sense once the letter by Mr. Raju to the board of the Satyam was out.

Here’s how the story unfolded...

Full Text of Mr. Raju’s letter to Satyam Board

http://spoonfeedin.blogspot.com/2009/01/business-satyam-full-text-of-rajus.html

Mr. Narayanmurthy reacts... It is important to remember that one Satyam does not make the entire Indian software industry. I believe it is an isolated case

http://spoonfeedin.blogspot.com/2009/01/business-satyam-case-is-warning-for.html

ICAI, ICSI say they are working on the facts of the case... Will soon take action

http://spoonfeedin.blogspot.com/2009/01/business-indiaicai-moots-strong.html

Satyam to be thrown out of NIFTY, SENSEX?

http://spoonfeedin.blogspot.com/2009/01/business-satyam-may-be-removed-from.html

The Fraud

There is Rs. 5040 Crores worth inflated cash and bank balance

Non-existent accrued interest of Rs. 376 Crores

Understated liability of Rs. 1230 Crores

Overstated debtor position of Rs. 490 Crores

For last quarter,

Overstated Revenues by Rs. 588 Crores and overstated operating profit by Rs. 588 Crores

Added together, it is a discrepancy of Rs. 7724 Crores on the face of it for a company having annual revenues of Rs. 10000 odd Crores, a gigantic fraud by Indian standards. 

The After-effects

• Satyam Scrip on NSE, BSE crashed 77% to Rs. 40.25 on the news and the great story for a seemingly successful Indian IT company ended. Fingers were pointed, concerns were raised, complaints were filed and dreams were shattered. What happened at Satyam and why it happened will be contemplated by regulators and chewed by business media for days to come but I think it is time for some quick action on part of the regulators, corporate India and the government
  
• The event has left Satyam with virtually no board as most of the independent directors have resigned and promoters will be kicked out. The Acquirer or the government must appoint able directors quickly to ensure business sustainability
  
• There are about 53000 able employees of Satyam which need to be taken care of. They are at no fault for the current crisis at Satyam and still make Satyam a valuable enterprise
  
• Many customers of Satyam still expect to be serviced and in case of an unfortunate event of bankruptcy, the contracts should be sold to other Indian companies (By the government of course) so as to make sure that Indian IT story is not dented
  
• The auditors and their inability to verify even the cash balances of Satyam is a fact that concerns me. There should be higher accountability or responsibility on part of the auditors and those found guilty should be severely punished
  
• Other Indian IT companies should do all that they can to prevent their image from denting. This includes assuring customers and investors about sound corporate governance (If it exists that is) and introducing transparency and stringency in the disclosures
  

Finally, my first recession gives me my first big scam in India. The crisis times like these separate good companies from ordinary ones and expose ill-managed organizations. The crisis could dampen India’s image as a good investment destination. It could affect badly, the businesses of Indian IT, BPO, KPO firms. We should remember that the position India is in, as an emerging and promising market, we cannot afford such mistakes and this event should and hopefully will have enough impact to trigger India’s Sarbanes-Oxley so that such mismanagement can be prevented in the future

PS: The word 'Satyam' means 'The truth' in Sanskrit whereas 'Asatyam' means a lie.

My First Recession

There is a special place for all the firsts in our lives... First day at school, first day at college, first drink, first job, first salary and many other firsts... These firsts in a way are milestones that define the journey of our life. As I was going through the newspaper in the morning today (which was full off grim business outlook, layoffs, etc) it struck me that this happens to be my first recession... Not something to be celebrated but interesting nonetheless... As far as the facts and figures go there has been a recession in India during 1996 but this one is the first one ever since I have become literate in economical sense and thus deserves its share of attention...

The times are exciting. Yes, I dare to say so and I say so during a recession at that... Living in this part of the world, I should call it a slowdown rather than a recession as India will still continue to grow with estimated GDP growth rate of anywhere between 5-7% in the next couple of years. I think as a student of the subject of finance the opportunity to learn is immense during these times. Not that there are no opportunities to learn when there is a general feeling of well being all around or when financial system around the globe is operating smoothly as it should unlike in the past few months but because there are a lot of things happening around which I may not seen again in my lifetime. Take for example the historic 700+ billion dollar bailout package in US, historical fall of the stock markets around the globe, the Iceland crisis, the historic rise and fall of crude oil prices and so on...

The good thing about slowdowns, recessions and bad times in general is that they help in weeding out the weak and unwanted excesses and result in many reforms or at least that is what we’ve seen in the past... I intend to look at this recession from an emerging markets’ perspective and focus on following aspects as India rides on this trough of the business cycle:

• The action in the Indian stock markets
• Actions of RBI in relation with the FED
• The policy reforms in India
• Indian businesses pre and post recession

Every week I will be taking up one important event pertaining to these aspects and discuss it at length. Your views, comments and inputs are welcome as always...

Fate of US of A?

A Collapse of the US of A...

Read the following hypothesis by a Russian professor on America’s eventual fate in the ongoing financial crisis. He thinks that rising debt, weakened financial position and growing influence of other countries on US will finally lead to disintegration of US into 6 states. A bold statement, but WSJ seems to be taking note... In fact the world seems to be taking a note...

Wall Street Journal Says:
http://online.wsj.com/article/SB123051100709638419.html?mod=googlenews_wsj

Watch the prognosis from the man himself - Professor Igor Panarin:
http://www.russiatoday.com/guests/video/1839

Money Matters...

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The Reservation Thing...

BCCI to introduce 30% reservation for backward classes in Indian Team…

Indian Railways introduce 50% reservation for backward classes…

Passing percentage for backward classes reduced to 20%...

Backward classes need not pay taxes… Prime Minister…

Backward class people will live 30% longer… The Almighty (what the heck)

I will not be surprised if I get to read any of these in TOI in the morning some day. I had decided not to react on this “Reservation Thing” and express my views anywhere or sign any petition as petitions and protests are hardly paid any attention these days. But later I realized that this political stunt for votes has much more to it than just being a political stunt. This is the time when India seems to be making a mark of its own on the global map, thanks to its skilled workforce. This is the time when graduates from IITs and IIMs are recognized world over for their brilliance. This is the time when Indian IT biggies are being known for their processes and efficiency. I really think that introducing (or rather increasing) reservations in premier educational institutes in India as well as in India Inc. is not an ideal way to support the massive growth we are witnessing today.

Facts:

1. Government has almost made up its mind to increase OBC reservations in IITs, IIMs and other such premier educational institutes to 49% from current 27%.

2. Government has been urging India Inc. to introduce reservations in jobs for backward classes and is now hinting at introducing a law for the same.

India edging over India:

Indeed there is a huge population in India that still does not have access to good educational facilities. There is large rural youth population that does not have access to opportunities as in urban India. We have a problem at our hands here and it needs to be addressed but introducing reservations is going to make matters worse rather than improving them. There is more to the current reservation policy than what meets our eye. First, we need to think from the point of view of an underprivileged student, who will use such reservations…

Where’s the Competition?

Reservations kill the very element of competitiveness. We can introduce better basic education, schools and colleges, more seats and scholarships if we want more people to be a part of modern, developing India. According to me, assisting backward classes to grow is a better option than securing their growth and that too at the expense of someone else’s. We need “National Talent Schemes” for spotting and promoting talent in less privileged sections of society. An underprivileged student surely needs financial assistance for his studies but does he really need assistance in terms of “seats solely reserved” for him? In fact “reserved seats” keep him from trying his best as he surely knows that he does not have to compete with all the students to secure the seat but it’s only the students of his category he is competing against.

Brain Drain:

Thinking from the perspective of a student in general, if he is not able to fulfill his dreams here in India, he will go abroad and fulfill them. We are already seeing this trend in urban India. If the government continues to continue with its reservation policies, the “Brain Drain” is just going to get worse. I strongly oppose reservations introduced in higher education and especially those in IITs and IIMs. We need to keep in mind that IITs and IIMs are not just educational institutes but they are “Best Education” that India has to offer. People go to IITs and IIMs not only because they are brands that assure highest of salaries but also because they are home to some of India’s greatest minds. Interaction and competition with like minded peers is one of the greatest offering of these institutes. It is really unfair to introduce reservations and thus bring down the quality of students in these institutes.

Government’ Stand:

Here's what our respected PM Mr. Manmohan Singh had to say about the stand of the government on the issue:

"We all need to ensure that no group feels excluded from enjoying the fruits of rapid economic growth"
Surely, we need to make sure that India as a whole profits from the massive economic growth we are going through today. At the same time we should not forget the reasons for this rapid growth. It is highly skilled low cost workforce in IT and ITES that has helped our economy gain this momentum. It is those ambitious entrepreneurs from IITs and IIMs that have catapulted India in this vantage position. The very concept of introducing reservations reduces the competitiveness and thus our advantage in these fields.

"Opening up the economy has meant diminishing job opportunities for the socially disadvantaged"
If there is a considerable difference between the skill set of “Socially Advantaged” and “Socially Disadvantaged” people then it’s a failure on the government’s part. It means that the government has failed to narrow down this gap. It is highly foolish of the government to expect the Indian industry to pay the price of its misdeeds by introducing reservations in jobs.

India Inc.’s Stand:

India Inc. has clearly signaled its disapproval on this matter. Industries should concentrate on increasing their stake holder’s wealth rather than anything else if we are to survive in the opened-up economy against other global players. Industry thinks that everyone should come forward and do something voluntarily to improve the condition of the socially disadvantaged but introducing a law and forcing things is not a solution.

Solution:

India has to manage two things at the same time if it has to progress in a true sense. At one hand it has urban population that is living like people in any of the developed countries. These people are rich, have access to best of facilities. On the other hand, it has a large rural population devoid of all such facilities. This rural population cannot afford and does not have access to good educational facilities. But this distinction should solely be done on the basis of income of a family and not on the basis of “which caste it belongs to”. Again, scholarships would be much better as compared to “reserved seats”.

What next?

After strong opposition from the Indian Industry on “reservation in jobs”, the government has softened its stand a bit. Even the IITs and IIMs have not been informed about the new reservation policies. I hope this “Reservation thing” was a mere vote-magnet for the assembly elections and will soon be forgotten by everyone. If not so, we are surely in for a lot of debate and controversies.