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Those readers who have been following this blog since its inception would know that I have written earlier about the relevance of the BJP and the reasons for its electoral defeat. Since the defeat in the Lok Sabha elections, the BJP has embroiled itself into a public spectacle of factionalism, of  leaders squabbling in public and seems to be a party clueless about its future. Readers of the earlier posts would also be familiar with my political and ideological affinity towards the BJP. I am therefore, writing this with what can be interpreted as a sense of disillusionment. In this post, I intend to look at the causes behind the BJP’s current predicament and what could be the path ahead for the party. continue

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Transaction Costs, Incentive Structures, Free Markets and the Nature of Investment Banking

Disclaimer: This is not a post about life in an investment bank (The books, Monkey Business and Liar’s Poker have done a great job describing that). It is also not about investment banking bonuses about which lot has been written (My personal take is that much of the criticism is absolutely justified), though some inferences about the culture surrounding bonuses could be derived from it. And finally, it is not about those parts of investment banks that sold worthless, toxic assets to the poor, (well, not really …) unsuspecting buyers and almost ruined the world. This is about the mythical, much glorified advisory business of investment banks. continue

(In this post, I intend to analyze the Indian budget for FY 2009-10 in terms of what it really means for the Indian economy and explain why I believe the markets seem to have got this wrong.  This is a slightly long post, but then so is the budget!)

In India, the budget speech is perceived as the government’s most important policy statement (though by no means, the only one) and is therefore keenly awaited and subject to much interpretation and hyperbolic analysis (Once upon a time, it might have been intended as a simple statement of accounts, but that no longer seems to be the case). Finance Minister Pranab Mukherjee’s budget for FY 2009-10 has kept this tradition alive; if anything, it has surpassed previous benchmarks with analysts and commentators having sky-high (perhaps unwarranted) expectations and then responding violently (perhaps knee-jerk) with the benchmark Sensex dropping 869 points or 5.8%.  By now, a lot has been written about the budget and hopefully there aren’t any more stings in the budgetary tail left. continue

In the last article I had wrote, I had promised the next article on a different subject. Apologies if I disappointed anyone, but digressing for an article to discuss a key development which as usual, the mainstream media (even business) seems to have missed.

A couple of weeks back, there was a brief snippet on CNBC TV18 about the Reserve Bank of India (RBI) treating Compulsorily Convertible Preference Shares (CCPS) with fixed exit prices as debt. (I don’t know if this is correct or not; I have not been able to locate a RBI notification or a circular to that effect; in case anybody has seen one, please pass it on). Yesterday, the RBI prevented DE Shaw from selling its stake held through CCPS in DLF Assets Limited (DAL) through the exercise of a put option at a fixed return of 27%. Surprisingly, there haven’t been a lot of discussions on this. Surprising for the following reason; for the first time, there has been an attempt to define debt and equity in terms of economics rather than accounting; which in my opinion is an important distinction. continue

Last week, I had written a post about the discourse regarding reforms in India and the nature of reforms India actually needs. A major category of reforms; often talked about; is reforms regarding the justice delivery system in India. Somehow, the discussion on reforms in India has always arisen in an economic context; reforms were steps taken to increase India’s GDP growth rate by either liberalizing foreign trade , allowing more competition and more free markets domestically and/or promoting exports. These reforms have benefited people in their roles as consumers, entrepreneurs, employees- in other words, as participants in an economic system. But people also play another integral role – that of a citizen.  Reforms to facilitate this role have been few and far between. continue

The Indian media, analyst community and various other frequent providers of sound-bytes think and operate in waves; a couple of months ago, the wave was “fractured mandates”, then it was the IPL and now, the new buzz-word seems to be “Reforms”. Reforms are the flavor of the season, these are acts that shall spectacularly take India to eternal greatness. But it you ask people, what exactly do they mean by reforms? One doen’t get very clear answers. One usually hears specific steps like allowing or increasing FDI limits in a few sectors like retail and insurance, allowing foreign banks in India and/or allowing firms to “hire and fire”employees at will. While these might be important (and that is a matter of debate), these are all specific steps that a government could decide to take in order to build investor confidence or improve efficiency in specific sectors. These answers don’t go anywhere towards elaborating on the concept of reforms. continue

There has been a lot written and talked about why the BJP did so badly in Elections 2009. Arun Jaitley wrote a fairly honest and analytical column in the Indian Express last week saying this was a message that voters wanted stability, moderation and it was a vote against shrillness in public discourse. Some of the most commonly cited reasons include lack of a credible alternative to Dr. Manmohan Singh, projection of Narendra Modi as future PM midway through the campaign (who inspite of a track record of development remains a divisive figure), disconnect with the youth and disillusionment of its core voters with the BJP’s overtures towards giving up its core demands – Uniform Civil Code, Article 370 and Ram Mandir. Inability to form new alliances or retain key allies like BJD is also cited as a reason. I don’t want to go over already covered material here (Thanks to Kaushik Saha, who in a comment to my earlier post on the BJP covered a lot of issues). I think there were factors beyond this which have not been discussed adequately. Key among these include: continue

Across business schools (IIMC is an exception), corporates and particularly in investment banks; places such as the one where I work (as of May 22, 2009), it is blasphemy to talk favorably about the Left parties (commonly used title for the communist parties in India mainly the  Communist Party of India (Marxist) (CPI-M) and the Communist Party of India (CPI)). These are people who are fanatical about their dislike for the Left without even bothering to know the issue under discussion and the Left’s stand on it. While I am no card carrying communist, I think the Left is often maligned without sufficient reason. The Left is often dogmatic in its stand on a number of issues, but most of us are equally dogmatic about our dislike for it.  Most of us have been part of or have witnessed discussions on how obsolete these parties are, how they are complete show stoppers, obstructing the caravan of “reforms” on its way to prosperity and amusement about how on earth do these guys manage to get themselves elected from two god-forsaken parts of the country (to the uninitiated; West Bengal and Kerala). In this post, I wish to provide a counterpoint. I think the Left is still relevant, largely because the causes they stand for – of equality for all citizens, of rights for the perennially oppressed and most importantly, questioning our new found love  for financial sector reforms are still relevant.  I think the Left is sometimes right; for the following reasons: continue

As all the hyperbole about Elections 2009 recedes (It is amazing to see stock markets stop trading because of election results), I think it is appropriate to objectively discuss the elections. Some of the things that are interesting are the failures of the BJP and the Left  (seemingly parties with committed voter bases) to enthuse the voters, the inability of psephologists and markets to predict the results and the decline of regional parties. I intend to write about this in the next few posts of mine. I think no person is (or should be) politically neutral, it is necessary to have a stand as long as the stand is not dogmatic and as long as one is upfront about this and does not pretend to be unbiased. (I support the BJP, so readers can look at these posts in that light. I assure you this will not deter me from being rather critical of the BJP in later posts) continue

In a previous post on M&A synergies, I had made a brief mention of mindsets towards acquisitions. I want to narrate a small incident and see if this provides any insights into the thought process.

A leading Indian conglomerate routinely conducts various competitions in India’s elite business schools. I was fortunate enough to participate in a corporate finance competition at IIM Ahmedabad. The format of the competition was something like this: Each team was given a list of five Group companies in different sectors and five potential targets for each company. The teams had to select one Group company, identify a target for that company and justify the choice using a strategic rationale. Also, conduct a valuation of the same. So far, so good.. There are many variants of this competition. In fact, its a very good simulation of how bankers want corporate strategists to think: You take a pitchbook with a list of potential targets for each group company and hope that the group evaluates it. And this, I think is a big mistake. continue