Are We Out Of The Woods Yet?

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The Journey with Recession Continues

The flow of grim news continues... Layoffs, thinner bottom-lines, red tickers and bail-out packages. All the markets around the world seem to have rediscovered gravity for themselves and there is no sign of recovery...

The slowdown starts showing in the Balance-Sheets of the corporate...

See the DLF results
http://economictimes.indiatimes.com/DLF_plunges_nearly_14_on_poor_results/rssarticleshow/4065321.cms

I think there’s more pain to come. The Jan-Mar quarter will not be better either. God knows where the Sensex is headed...

Look at the scary job cuts all across the globe
http://economictimes.indiatimes.com/Features/Job_trends_during_times_of_turbulence/Rising_layoffs_9000_job_vanishing_every_day/articleshow/4059166.cms

It is not all that bad if you are an Indian techie though...
http://economictimes.indiatimes.com/Features/Job_trends_during_times_of_turbulence/Microsoft_Layoffs_for_some_visas_for_others/articleshow/4064164.cms

Assocham demands STPI benefits extension till 2012... Read the Story...
http://economictimes.indiatimes.com/Extend_STPI_benefits_to_ITeS_till_12/rssarticleshow/4066059.cms

The MSMEs are suffering... Though they have no one to lobby for them as hard... Where’s the relief package for them? Read the story...
http://economictimes.indiatimes.com/Micro_industries_face_closure/rssarticleshow/4064142.cms

Indian Exports put up a better show in December... Some sign of relief?
http://economictimes.indiatimes.com/Exports_put_up_a_better_show_in_Dec/rssarticleshow/4063486.cms

Meanwhile interest rates are headed downwards... SBI to lend housing and SME loans at 8%. Way below their PLR... Government pressure or a bold business strategy? Time to short SBI for a couple of quarters it seems...

http://economictimes.indiatimes.com/Exports_put_up_a_better_show_in_Dec/rssarticleshow/4063486.cms
http://economictimes.indiatimes.com/SBI_contemplating_further_cut_in_lending_rates/rssarticleshow/4063716.cms

China pushes rural consumption

A novel idea may be... But a non-market force cannot have it all right all the time...Reaffirms my faith that with all the controls and directives by the government, China is bound to fail in a few decades’ time...
http://spoonfeedin.blogspot.com/2009/02/world-china-spurs-rural-consumption.html

B-School, Bad news and a trip to Lucknow

Third trimester has begun... Before I realize it, first year of my MBA experience is almost over... I realize that I haven't really jotted down anything on my B-School experience as yet and now is the time to do so.

After more than two years of work experience (Or whatever experience that was), I finally joined a B-School. I must admit that given the fierce competition, what people say about different B-Schools in India and different B-School rankings floating around, mine qualifies to be 'A B-School' and not 'The B-School'. The experience has been value adding and interesting nonetheless.

After working in the field of stock market for real-time trading software development at TCS, I, like any other mortal who likes money, got hooked onto the market. A few certifications and I started thinking that I know how the world of finance works. Finance seemed the most obvious choice for my MBA specialization. I knew I was made for Finance. I was born for Finance. As a matter of fact, I believed that I was born for Computers and everything there is about computing back in 2001 when I had to choose my specialization in engineering ;-). (Fortunately for me it turned out to be not so wrong and I still think I like technology and everything there is about technology and I hope it turns out to be true again this time too)

So I became a student again and after a big gap of three years, attending lectures and submitting assignments was quite a task. The strangest part and a significant difference between MBAs and Engineers comes from the fact that unlike Engineers that are programmed to mass-replicate the assignments, MBAs seem to be less into team work... This means that I have to do all my assignments on my own. Working hard throughout night, passing on work to group members, last minute changes, pretending to know everything during presentations is fun nevertheless.

Other important difference is the improved quality of the pedagogy. With all due respect to the teachers in my engineering colleges (Last time I visited my engineering college, my professors still remembered me... I am dead sure that none of them reads this blog though...), I can safely say that teachers in the B-Schools know what is teaching. Here, there's more to teaching than reading out of a book when you know that no one around is listening. Here, most of the students listen to what the professors have to say and most of the professors know what they are teaching. (The word most is of utmost importance here ;-))

The title of the post also says something about bad news. The bad news this time comes from a probable scam in the Munis Bond market in the US. Read this story in New York TImes

http://www.nytimes.com/2009/01/09/business/09insure.html?_r=2&th=&emc=th&pagewanted=all

After Satyam, it is turn of Wipro to get punished from the World Bank. Read this Bloomberg story

http://www.bloomberg.com/apps/news?pid=20601091&sid=a9JU.qfdvJ08&refer=india

The disclosure came almost 18 months after the actual ban was imposed. After world bank made the information public, the company did whatever it could to assure market of its negligible share of revenues from World Bank project but the scrip was still hammerred down 10 percentage points. In the context of the overall grim sentiments, markets seem to be in the mood of punishing even the slightest mistakes of the corporates. This also brings out the fact that disclosure norms in India need to be improved.

For the last part of the title, I am going to IIM Lucknow a couple of days hence to represent my college for an event there. Visitng an IIM campus was always a dream and I have a chance to put it into reality and that too as an all expenses paid trip by IIML :-). As I am packing my stuff and deciding things to do and movies to wathc during the 24 hours long train journey, I find this post that lists great business related movies of all time

http://financialrounds.blogspot.com/2009/01/great-list-of-business-related-movies.html

Now that I have covered the whole title, I can hit the bed...

PS: Song Playing - Kahin to hogi woh - Jaane Tu Ya Jaane Na....

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...