(This appears in today’s edition/s of Deccan Chronicle . ( )

Given that the govt will not privatise PSU Banks, the least they can do is to contain the problem. Solving the NPA issue for now is a temporary solution. Time and politics will take its toll. In the meanwhile, some structural changes could be done.. My thoughts..)


Our PSU Banks are a source of unending misery. Looking at the structure and the assets of these banks, a few things strike me:

  1. All of them own a lot of real estate;
  2. All of them are bunched in many places, often, near each other;
  3. Branch wise profitability scores are distorted because market rate rents not factored in;
  4. Locally, same trader has multiple borrowings from neighbouring bank branches, without the banks ever bothering to contact each other about the outstandings. A trader simply operates under different names;
  5. Every bank needs capital;
  6. Skill sets are inadequate when compared to private sector banks;
  7. Decision making is knotted up in red tape;
  8. Government (promoter) interference in lending and hiring;
  9. No long-term game plan or business plan;
  10. Staff cannot be managed with the same flexibility as in a private sector, due to the unionization;


Each PSU entity is seen as a ‘fief’ which is handed over to the favourites of the politicians. A new beginning has been made with Bank of Baroda, where a private sector banker has been pushed in to the job. While he may want to make a lot of changes, his hands are still tied as he is burdened with the rules that limit hiring of new talent and removal of inefficient or unwanted headcount.


In this backdrop, two big events have happened. SBI has finally put an end to its subsidiaries and merged all in to itself.  This week, a merger of Vijaya Bank and Dena Bank in to Bank of Baroda has been announced.  While the SBI family merger did not involve serious culture clash, this merger will come with its unique set of problems. So many power centres in three banks will vanish. The affected are not going to be happy and frustration will set in.  While the CEO may like to do a lot of pruning, his hands would be tied. However, I see the outcome as a good one and more such mergers should happen. If the number of PSU Banks are reduced to two or three, then there would be a lot of gains. It may mean that a lot  of space would be left open for private banks to occupy. However, as a promoter, the government of India gains lots more by consolidating.  Some of the good things I can see are:


  1. Size of PSU Banks would go up;
  2. The on-going NPA clean up would leave the banks with good health;
  • A change in management and functioning styles can be easily managed;
  1. Lesser number of windows for corruption and ‘rent’ seeking;
  2. Combined with technology, room for frauds will be far fewer;
  3. Tremendous savings in infrastructure costs;
  • Easier to centralise the credit function- probably, the single biggest ‘need of the hour’; and
  • Finding resources for shoring up the capital base.


On the issue of raising capital, I have some thoughts.  Firstly, there would be a surfeit of real estate as branches would get chopped and rationalized. Wherever there are ‘owned’ premises, the sale of such premises would help realized money that will go straight to the Tier I capital. The government can do its bit by total exemption of capital gains for the PSU Banks for a window of a year or two.  The second way to raise resources is something that will call for arguments. Wherever the bank is occupying ‘owned’ premises, there is no ‘rent’ that is charged to the P&L and to this extent distorts the numbers by showing higher profitability than what is.  So, if a bundle of owned property is ‘sold and leased-back’ it would do two things- The sale proceeds would bring in cash to shore up capital. And the lease rent (the lease can be a back-ended one for thirty years or more) will reflect on the P&L account.  As to who will buy the asset, it can be a structured transaction with insurance companies, which need long maturity instruments. If there is a will it can be done. Alternatively, a mega “REIT” can be created, where all the PSU Bank properties are housed. This REIT can sell its units to investors who could be any one. It will also give a boost to the REIT markets with a globally comparable structure.


Thus, the mergers and consolidation in the PSU Banking space should be the order of the day. Competition will be sharper and focused. And the promoter has to think seriously about the management quality. The PSU Banks are one space where even the management cadre has a trade union! It is time to permanently fix this bleeding PSU Banks. It calls for a lot of political will.






(From an old Moneylife issue)
Understanding Credit Ratings

Credit rating is a much-misunderstood concept. It is also a much-abused concept. Normally, not many people care to know about rating. It’s only when ratings suddenly go wrong and there are defaults and downgrades, that there is a lot of outrage and the regulators and the public react sharply. The recent debacles of irresponsible investors have put the focus on credit rating. It is important that we understand the limitations of credit rating.
The first thing to understand is that ‘rating’ is an opinion. It expresses, in symbols, the likelihood of default in a specific debt instrument to which the rating applies. It is NOT a view on the company. For example, we may perceive Infosys/ITC/Tata Steel, etc, as ‘Triple A’ companies. This is where we make our first mistake. A credit rating applies only to a specific debt paper. It is possible that the same company may have two debt papers with separate ratings if the features are different. And a credit rating of a specific debt cannot be taken as a proxy for more lending. Often, our perceptions are clouded by the promoters, the share price performance and the fact that a company is debt-free, etc. A high credit rating is generally a good indicator of a good company, but it is not the sole guarantee. It is only a ‘confirmatory’ factor.
A credit rating agency uses several assumptions and these are all forward-looking views. Thus, there could be a change in the credit rating, should some events not materialise as expected. And industry dynamics keep changing. A rating agency will try to take a middle-of-the-road approach; it cannot take the most optimistic or the most pessimistic view.
We have to use credit rating as the first guide to preparing a shortlist for investing in debt instruments. Especially, if the investor is a ‘professional’ one—like a mutual fund or a pension fund. In today’s world, every investor does not know everything about every company. Credit rating merely helps a professional investor to prepare a shortlist and also to price the instrument. It is only the first step before an investor can take a final call to invest or not. The due diligence, in terms of homework, legal documentation and pricing, etc, is the work that the investor has to do. He cannot take the credit rating as the only requirement.
Research houses place ‘buy’ recommendations on equity shares. Do we ever hold them accountable or liable if the share price does not behave as expected? Credit rating is in the same category. Ultimately, the credibility of a rating agency is built over time. Agencies, like Moody’s and Standard & Poor’s, have been around for over a hundred years. If you take the total number of ratings assigned by them and take the number of errors, it would not be a large percentage. In the meanwhile, a few rating agencies came and went. It is still a duopoly in the developed world. Other agencies are ‘also-ran’ and carry less credibility than the big two.
In India, our approach to credit rating has been wrong. First of all, rating agencies are regulated by an agency that has no skills to regulate them. Secondly, we introduced the concept of ‘recognition’—that means that we let the door open to let in as many as possible. And we also let lenders control a rating agency (of course, with the so-called ‘Chinese walls’) and the result is not so good. Firstly, the lending agency ‘passes’ business to its subsidiary by coercion. And, when there are half a dozen ‘recognised’ rating agencies, there are bound to be one or two that will take the shortcut to get market share. ‘Shopping’ for ratings has become common now. And, in India, credibility is not as important as ‘managing’ the environment.
In the marketplace, most serious investors in debt do make a distinction between the rating agencies. They do not admit it publicly; but if you go through the history of rating disasters (I still maintain that if we look at the total history of credit rating in India, by and large, it has been a fantastic job).
The one disaster India has escaped has been the ‘exuberance’ of the rating agencies when it comes to ‘structured’ finance. The Lehman Brothers’ disaster was a defining moment in the history of credit rating. Liberal ratings, poor structures and the subsequent setback to the financial system, made the pre-2008 period in the US one of the worst periods in the history of credit rating. Rating agencies fought with each other to come out with more and more exotic structures on ‘demand’ by investment bankers who just wanted to collect fat fees for raising money and parking it with professional investors who used credit rating as the excuse, or justification, for their investment. It was a fraud on the financial system where everyone was guilty. And the prime focus was on the rating agencies, since they were the ‘holiest’ of the entire group of participants.
For retail investors, credit rating is of no practical use. The only place where they come in touch with rating is in the fixed deposit or retail bond markets. Here, I would urge people to remember that a rating agency is merely giving its opinion which can change anytime. It is based on assumptions of business, industry and probability of outcomes. The rating symbol is only a starting point. If you cannot do any analysis, it is better to put your money in a mutual fund that invests in debt instruments. Or if your amounts are small, then do not risk an extra percent or two; play safe and stick to bank deposits. We also have ourselves to blame. I know of people who lost money in fixed deposits. In most cases, the papers were either without a credit rating or a low rating. And there is also a pattern to the defaults in the local debt market. You have to make a distinction between the rating agencies. Personally, if there is a company where I have to depend on the credit rating alone, I will let that investment pass.
A credit rating, for a professional investor, is only a tool to shortlist or a starting point. He has to do his due diligence, analyse all the pros and cons and then take a decision. Often, in the institutional segment, the call to invest is taken by the fund manager at a very short notice. A credit decision is more complex than an equity investment decision. Investing in credit is actually taking a call on a company’s ability to pay interest and repay principal on the precise due dates. Analysis of the cash flow matters a lot. The legal system is complex. And, unlike equity, which can be sold at some price or the other, debt is either repaid in full or you get zero on the due date. Getting money after the due date may be OK for a banker, but not for a mutual fund or the individual investor. To sum up:
1. Credit rating is just an opinion, like a broker’s report on a share;
2. Investor has to do his due diligence before taking the call;
3. Rating agencies build reputations/trust on the basis of their track records;
4. Merely being a ‘recognised’ rating agency does not mean anything. Pedigree, process and reputation matter;
5. Credit ratings are specific to debt instruments. We cannot use them as a proxy for other papers or debt;
6. There is no such thing as a ‘company’ rating;
7. Depending solely on a credit rating for any investment or lending decision is irresponsible financial behaviour;
8. No amount of regulatory supervision will guarantee the integrity, or otherwise, of a credit rating agency. Reputation gets built over time.

Jack and the Beanstalk

Jack and the Beanstalk (New and Improved)

This was written by Neeraja, my daughter, many years ago.
Hope you enjoy it as much as I did and still do.

**New and Improved**JACK AND THE BEANSTALK
Once upon a time, not so long ago,
There lived Jack, his Ma, and their cow Mo.
Jack’s Ma, being a gambler, was prone to being broke,
And one such time when it happenned, she chanced upon this bloke
Who gave her the marvellous idea of selling her old cow.
She thought it a brilliant plan, and how.
She called Jack and told him sternly,
“You better sell our cow, and for good money”.
The next day Jack, his car, and his cow
Left the village for the market next town.
The next week Jack returned
And saw his mum playing solitaire cards upturned.
“Mum!”he cried “Are you alright?”
“The cards are turned the other side”.
She said,”Forget about me for now”
“How much did you get for our cow?”
He said ” I don’t think you could ever make,
A better deal than I just made”
He proudly held for Ma to see
A large bunch of green, weird leaves.
She cried “You dimwitted, useless clump,
What do I do with a weedy clump?”
“Mum, just light it up and take a puff,
One go at it ain’t enough”
She found out soon that he was right.
She would love to smoke it through the night.
The next day, the weeds, hard won,
Were planted by Ma at break of sun.
Soon, news spread about Jack’s magic weed
That gave you all the kick you need.
Its sales grew, and grew alright,
Jack became a millionaire almost overnight.
But the initial success of Jack and Ma
Hit a hurdle before going too far.
The police heard of”this marvellous high”
and the “weed which can kick you sky high”
They told Jack”I doubt it is legal
If it is, then I’m a sea-gull”
Jack, being quick of thought,
Realised profit lay beyond the law.
He gave the police a piece of his mind.
They left the town, left nothing behind.
They all made a quick, hasty dash,
Turned by the call of cold hard cash.
Thus goes the tale of Jack.
Of whom all that remains is his old shack,
In some place far far away,
Where his descendants live to retell the lay.

Early to Invest- Key to Financial Happiness

(This appears in some editions of Deccan Chronicle, today. Make sure you pass the message to your children. And if you have very young children, leave them a good inheritance without much risk)

Money & Life

There is a wonderful and thought-provoking article in New York Times that every young person should read.  Here is a link to that


Financial planning may help you to understand some numbers based on a whole lot of assumptions. However, the bigger thing here is lifestyle planning. The author talks about saving more by spending less. Most good planners would also tell you the same thing.

I feel it would be nice if we have a breed of ‘LIFE COACH” that can help us with our emotional aspects related to finances also. Savings and investment are a function of attitude. It is good to pause once in while and take stock of our life goals and not just the money part of it.


Lifestyle is a personal choice. However, often, we are thrust headlong in to a lifestyle, without pausing to think. We are driven by media, advertising and what we see around us. It is a rat race where we want to have one better than what the neighbor has. I do not want to sound judgmental. What I want to point out is that financial planning should also include “lifestyle” options. What each lifestyle can do to our finances and our retirement plans. I will illustrate that with a simple example:


  1. Save 10,000 p.a. for 40 years.          End of 40th year     Amount is Rs.28.00 lakh appr
  2. Save 10,000 p.a from 11th t0 40 yrs End of 40th year    Amount is Rs.12.25 lakh appr
  3. Save 10,000 p.a from 1-10 and forget End of 40th year Amount is Rs.14 lakh appr.
  4. To get 14 lakh at end of 40th year, you should save almost 90,000 p.a if you start after the first 30 years have gone by.

I have used a very modest sum of 10,000 per year.

How many of us sit down to think? We are more worried about the next iphone to buy or the down payment on the new car we want to get. I am not against this consumption. I think we owe it to ourselves to live well. I am pointing out the advantages of saving early in life, before our propensity to save is reduced with life’s responsibilities.

The numbers above assume a compounded annual return of EIGHT percent (8% p.a.). If it is ten percent, the 28 lakh would become Rs.48 lakh!!. The difference of 2% compounded over the 40 years magnifies the final amount almost by 100%.

The early years are wonderful years to put a foundation in place. If you have to give a gift of financial freedom to your child (debatable whether it is a good thing) put in a 10,000 monthly SIP in any ETF for the first ten years of his life. Pass it on to him only when he is 50. Probably he could retire. At 10% p.a. this will result in a little over three crore rupees on the ‘child’s’ 50th birthday.

The earlier you start your savings, the sooner you can hang up your boots. Of course, you may love what you are doing and want to be at it for as long as you want. That is a matter of choice. If you do not start in time to build your pool of savings, you may not be left with a choice to work or not.

You will also find that the later you start your savings plan, you will start worrying more and more about risk. Investing in bank deposits may be safe, but it is not tax efficient and consequently it will not beat inflation. Equities capture this in their growth. And equities need time to grow. If I start my savings and investment plan at fifty, with nothing to fall back on, I will be afraid to look at stocks. I will be more worried about preserving my money because I know that my future earning period is limited. On the other hand, if I buy shares when I am twenty-five, I can afford to be wrong.

The trouble with us is we do not know when to say ‘enough’. Lifestyle choices and ambitions are often in conflict with financial freedom. If you understand the magic of compounding, your choices will be easy to make.

I can write a million articles. You can read a million books. You can talk to hundred advisors. Nothing matters. YOU have to take the first step. The first step that you take towards a planned savings and investment regimen will reduce your worries dramatically. While you are working, put your money to work. So many things in life get easier.  Happy Investing.




(This appears in today’s Deccan Chronicle. Some thoughts on why we need help with investing and why it should be paid and not free)

( )



At a recent conference that I was moderating, a member of the audience raised the following question:

“Sir, we get SMS saying that they are SEBI registered investment advisors. We pay Rs.25,000 for a single stock recommendation and then we find that the stock does not do well. Will SEBI take action against this?”

I almost fell out of my chair laughing.  The gentleman from SEBI was more polite and made a very succinct remark “When intellect gives in to greed, the outcome is not pleasant”.

The label of a SEBI advisor simply means that he probably has the legal qualifications as prescribed by SEBI and has passed the requisite exams. Or he may just be faking that he is qualified. Many of them mislead you by saying “SEBI approved”. Well, SEBI does not approve of anyone or anything. Get that clear. He is merely qualified to put the lable of the term ‘advisor’. He is just a ‘qualified’ advisor. SEBI does not give us any assurance of his abilities. Just like a medical practitioner is allowed to put the term “doctor” before his name because he has passed the exams etc, does it mean that he can identify and treat everything? There are good doctors and not so good doctors. Same is the case for every profession.

Why is it that we are so ready to part with our money to some unknown person? And back that advice with more money by chasing that idea? Just ask yourself one question. If that gentleman was so good, why is he not holidaying in Cannes or Monaco by simply multiplying his money? The very fact that he is selling this advice means that the probability for the advice to work favourably is limited to 50%. While I may think I am the best analyst in the world, there is not guarantee that the stocks I pick will fly on the bourses. I or anyone else has no clue about what the stock prices will be in the future.

We put our money at risk. It is best that we UNDERSTAND the risks first rather than simply look at the upside. Remember that prices can move in two directions. It is not within the control of any one of us.

Advisors should be chosen with care. You could opt for someone within your known circles. That generally is the best. Someone who can give you time. Of course, the caveat is that we pay for advise. If there are pure ‘advise’ only, no execution, that may be an option.

On the equities side, there are some good independent research firms emerging. They will have a ‘subscription’ model.  Check out the background of the people who run it.  Important thing is that we manage our risks well. Simple things like never putting all our money in one idea (unless you are backing something entrepreneurial on your own) and after understanding the recommendation a bit. Blind trust is never good.

In fact, most good advisors will either give you a model portfolio or stock specific advice. And many of them do tell you not to put all in one basket. Diversification of risk is important, whether you get written advice or not.

There are some ‘advisors’ who also act as distributors. So long as they tell you that they make a commission by selling you a product, it is clean. Of course, it is possible that like in insurance, they will only push what they sell. That can be injurious to you and not get you the best possible. Pure fees only advisories are the ones to seek out.

How much is fair payment? A Rs.50,000 annual fee may be large for someone whose investment size if five to ten lakh. The problem is that a good advisor needs a minimum remuneration for an idea. So for those who cannot afford to buy advise, it is possible that you could form a serious investment group and pool in your resources. Free advice is generally very expensive in the long run. Do not chase every newsletter. Go for someone who is happy to share his/her entire record with you as a matter or routine. Many will tell you only about the ‘right’ recommendations and be quiet on the wrong ones.

One thing to remember is that investments in equities needs patience. Unless of course you are buy very short term trading ideas based on technicals or astrology or some such thing. Then you are on your own. Do not blame SEBI. I do not know if SEBI has come out with any qualifying examination for ‘technical’ analysts.

R Balakrishnan





Investing – Picking themes

Some thoughts on creating wealth- Putting money behind consumption themes- If we know where money is being spent, it should lead us to making money too.

(This appears in Deccan Chronicle- yesterday/today)

IKEA, a global furniture seller, opened his shop in Hyderabad this week. The videos of the crowds tell us a story. That we Indians are compulsive shoppers. Over the last few years, we have seen an explosion in retail shopping. Whether it be malls or online or offline. A new comer like Patanjali has become a challenger to the Levers and the Nestles. And the other thing to notice is that new comers have not, as a group, taken away size from existing players. They have added to the market size.

As per reports, the ‘average’ per capita of an Indian is Rs.80,000 per year. For a family of four, it is Rs.4 lakh per year. Of course, the average is misleading. Maybe half our population is below this line. However, each day, more and more people are moving up in terms of per capita income. We are an aspiring population.

The inequalities also mean that more and more money is being ‘saved’ or ‘invested’. The flow of monthly “SIP” money in to Mutual Funds is at record levels. NBFCs that are lending in spaces like Housing Loans, personal loans, gold loans are growing at furious rates. Branded food outlets are also expanding at exponential  rates. Everyone is fighting for the money from the consumer. An extra rupee snatched from each one of us is Rs.130 crores!

There are two things to consider-  One is that there is an overall increase in disposable income. The second and more important thing is that the inequalities are also increasing. Thus, the spending increase will be more visible at the upper end. At the lower end, growth is dissipated due to the presence of the unorganized sector, leading to fragmentation. While nominal per capita income growth will be in two digits, we do not see the consumer giants report volume growth in two digits. There are also sectors where we are all spending big money, but companies are struggling- Telecom, airlines, etc- This is because there is regulatory intervention of a high magnitude. Wherever there are regulatory uncertainties, it is best to keep away.

At the upper end- beneficiaries seem to be in the high spend zones- luxury cars, jewellery, up market brands. At the middle, consumption and white goods seem to be the big winners. In many of these industries or businesses, the road to profits is long. Many miles to go. Thus, for most companies, staying the course is key.

Thus, when it comes to investing, the logical choice seems to be to pick up stocks from the “b2c” segment. It could be automobiles to toothpaste. Or lenders like Banks and finance companies. Housing finance companies, building materials. It is a huge space.

The one thing that strikes us that all the listed stocks in this space appear to be very expensive. However, those of us who thought of buying them at better or cheaper valuations are still waiting since long. There seems to be a premium attached to proven quality. The quality is also reflected in the high ROEs the companies earn and the regular dividend payouts, low to no debt and strong balance sheets.

With stocks remaining expensive in this sector, how does one build a portfolio of this over time? I believe that this sector can create a portfolio that can preserve your wealth and also beat inflation. We can pick from sectors like FMCG, Housing Finance, Banks, Building Materials, Automobiles, Branded apparel etc.  Once we start to make a list, it starts to grow and will rival a mutual fund portfolio. However, if we want to limit the number to fifteen or twenty, then the task is somewhat easier. Simply pick two from each segment. The two that have delivered the highest average ROE over the last ten years and in the last three years, have not seen a big decline in ROE.

This can be a ‘CORE’ portfolio. As regards timing, it is not easy. These stocks will not run away like some speculatives nor will crash. In a sense, they will give you ten to fifteen percent compounding over twenty years. One way to build such a portfolio would be to start a SIP for ten years or more in those stocks. I would put equal rupee amounts in each of them. If I have much smaller amounts at my disposal, it may make sense to stick to a large cap mutual fund. And one more thing would be to add to your stocks when there is bad news and the price reacts in a manner that is not justified.

And once you put this plan in place, additional moneys that you have could be used to bet on stocks that are still young and you become like a ‘venture capital’ investor in these.




This is RBI helping folks out with financial literacy. COMPLIMENTS TO RBI.



 Financial Education and RBI
RajuFinancial Inclusion and Education are two important elements in the Reserve Bank of India’s developmental role. Towards this, it has created critical volume of literature and has uploaded on its website in 13 languages for banks and other stakeholders to download and use. The aim of this initiative is to create awareness about financial products and services, good financial practices, going digital and consumer protection.

Financial Literacy Week is being observed during June 4-8, 2018 with the theme of customer protection. The week will focus on four consumer protection messages viz. 1. Know your Liability for unauthorized electronic banking transaction 2. Banking Ombudsman 3. Good practices for a safe digital banking experience and 4. Risk Vs Return. The promotional material for the Financial Literacy Week has been uploaded in the Downloads tab under the heading “Financial Literacy Week 2018”

The booklet FAME (Financial Awareness Messages) provides basic financial literacy messages for the information of general public. It contains eleven institution/product neutral financial awareness messages, such as, documents to be submitted while opening a bank account (KYC), importance of budgeting, saving and responsible borrowing, maintaining a good credit score by repaying loans on time, banking at doorstep or at vicinity, knowing how to lodge complaints at the bank and the Banking Ombudsman, usage of electronic remittances, investing money only in registered entities, etc.

 The RBI has developed tailored financial literacy content for five target groups’ viz. FarmersSmall entrepreneursSchool childrenSelf Help Groups and Senior Citizens that can be used by the trainers in financial literacy programmes.

Audio visuals have been designed for the benefit of general public on topics relating to Financial Literacy. These Audio visuals are on “Basic Financial Literacy“, “Unified Payments Interface” and “Going Digital“.

UPI_AdUSSD_AdTwo posters – UPI (Unified Payment Interface) and *99# (Unstructured Supplementary Service Data) – explained these new concepts in digital payments space.

RajuMoneyKumarAdEarlier, the Reserve Bank had published a series of pictorial booklets. Under the‘Raju’ title, it created literature on the habit of savings and banking concepts. The ‘Money Kumar’ series simultaneously explained the role and functions of the Reserve Bank.

All this is available in 13 regional Indian languages and can be easily downloaded at ‘Downloads’ tab.

Make in India- The search for ‘large’ investments by Funds

Market depth on the bourses has been a matter of serious concern. Every MF seems to have this problem as domestic savers pour money in. One way is to get the foreign companies that do business, to list here- Surely, if the govt wants, it can be done


(This appeared first in Moneylife)

Keeping the (Market Wealth) in India

Our honourable prime minister Narendra Modi is passionate about ‘Make in India’. Government policies are getting fine-tuned to make this easy. Today, I want to touch on a topic that is dear to my heart. About encouraging Indians to create wealth from the massive spending and growth that is happening in India. While our gross domestic product (GDP) may be growing in real terms at 6%-7% (implying a nominal growth in double-digit terms, given that inflation is around 4%-5%), many businesses are making money hand over fist and shareholders are creating wealth at a much faster pace.
The Indian consumer is the most sought after one today. Whether it is Google or Microsoft or Unilever or Nestlé or Apple, everyone is wooing Indian consumers. Indian consumers are giving a lot of boost to the share prices of all these companies. Then you pause. All this money is spent by the Indians. Who gains? Who owns Google or Microsoft? It is clearly the Americans who own bulk of the shares. You and I cannot buy five shares in Google as easily as we can buy five shares in Bajaj Auto or Maruti. In fact, we won’t be able to buy any with our national currency!
Now think of the opposite. Who owns top Indian companies? The fact is that HDFC (Housing Development Finance Corporation), HDFC Bank and ICICI Bank are overwhelmingly owned by foreign investors. In some cases, they hold 74% shares. Uday Kotak is probably India’s finest banker and sharpest brain. Read what he has to say here: He rightly points out that companies that need capital can find it from Indians. When that is possible, why do companies like HDFC have to raise money from foreigners?
Indeed, we have a problem of plenty. Indian mutual funds are flush with money and not finding enough investment avenues. They need quality investments. Why give this up to foreigners? He notes that HDFC is today owned 80% by foreigners! And 100% of the money is made from Indians and made in India! However, the wealth from this gets created abroad. Google, today, counts on India for its next big growth opportunity. Probably, companies like Google also do a lot of their development work in India. India has the fastest growing Internet market in the world. But then, who owns the wealth that gets created from this? Indians? Think again.
My friend, Umesh Kudalkar, is an investor and an analyst par excellence. He has sharp insights on most companies and also sees things from the top. He has made a very passionate argument which calls for listing of foreign companies in India, if they wish to do business here. While India needs capital to grow, India also has capital that seeks investment opportunities. I urge you to read his arguments for “Listing in India” at  To know more about Umesh, check I fully endorse his views. Yes, there could be legal or technical issues which may need to be addressed before we can actually commence listing and trading of global securities on our bourses. If Hong Kong or Japan or European countries can invest in shares in global companies, we should also be doing that.
Coming back to fund-raising by Indian companies, the government needs to revisit the provisions that permit companies to raise equity through private placement with select investors. This provision was introduced in an era when we widely believed that domestic shareholders would not participate in offerings of new shares at prices prevailing in the secondary markets. Today, things are different. Domestic money is in plentiful supply and looking for new investment options. It would be perfect if the clause were scrapped. However, markets are fickle and investor sentiments change. In order to help both, the government can insist that all new offerings should be compulsorily through rights issues (the principle of not diluting existing shareholders). Anything unsubscribed could be given to domestic mutual funds first and then to the horde of registered foreign institutional investors (FIIs). This can be done easily without any delay, as technology is an enabler of instant decisions.
There was a time when we needed FIIs. India was short of capital and FIIs were important because they pumped in billions of dollars every year. Those days are over. Already, investments by Indian mutual funds have overtaken FII investments. Much as we need their money, they also need investment options. China allowed foreigners to buy only in a graduated manner, limiting the number of companies, imposing several restrictions and so on. Here, we have opened our capital markets too much, too soon.
Last week, Indian Railways Finance Corporation launched a bond listing on the India INX. It is an initiative by the BSE, to enable foreigners to trade round the clock. In the first phase, it proposes to commence trading in equity derivatives, currency derivatives, commodity derivatives including index and stocks. Subsequently, depository receipts and bonds would be offered, once the required infrastructure for these is in place. The technology offerings at India INX would facilitate co-location of members in its own data centre at GIFT City (Ahmedabad) as well as provide high-frequency trading. It is an attempt to compete with the likes of Singapore and Hong Kong. It is only fair that foreign securities are available for trading for Indians.
Domestic companies’ shares are creating wealth for foreigners. And foreign companies are creating wealth for their shareholders by selling to Indian consumers. And, we, Indians are getting excluded. As Umesh Kudalkar mentions in his article, every government does things to encourage domestic participation. What are we doing? We are permitting foreign banks to thrive here, without being incorporated or listed here. I am sure that if we ask them to incorporate locally and get listed here, they will comply; no one will leave the country. On the other hand, we are seeing a bank like HDFC Bank being owned predominantly by foreigners and creating wealth for them. We can insist on the foreign companies to either list and offer shares to Indian investors and/or insist on their shares being traded within India, enabling Indians to buy those shares.
Indian investors have totally been left out of the wealth created by companies like Google, Apple, Microsoft, etc, while being big contributors to their profits. Our digital payment rewards are going to Visa and MasterCard. Here, if we cannot compete with them, at least owning their shares should be enabled. India has been perennially short of capital. It is only now that wealth creation is possible as entrepreneurs get rewards from the capital markets. By opening more avenues for Indian investors, this process can be accelerated. More capital means more risk-taking can happen. Ultimately, this will all go to increase the ‘Make in India’ pie.
Our capital market regulations are among the best in the world. In many cases, we are ahead of Western regulators when it comes to disclosure regulations. However, we seem to have had a blind spot when it comes to thinking about our own interests. We have a colonial mind-set. We still want to ‘impress’ and ‘favour’ the foreigner. Indeed, at the time of writing, there is a speculative news report that Indian government may allow 100% FDI in banks. I would be happy to see the government and the regulators take steps to get us freedom from the second colonial conquest, that of our capital markets.

“Financial” Parenting- You owe something to your children

(I had come across this wonderful term in the late nineties, in some research publication of Morgan Stanley Dean Witter. The topic was of educating children on finances. And also the dilemma of how will you motivate children who will want for nothing, whose errors are easily covered up financially and who have no need to work for a living. This piece of mine talks about some experiences I had.. This was published in the Deccan Chronicle of 29/30 July 2018)


 Our academics are interesting. We learn so many subjects and then finally land up in a job of profession where just one segment or fraction is actually useful. And Indian kids have been brought up to think that if one does badly in the holy PCM (Physics, Chemistry and Mathematics) one is a duffer. Everything is focused on earning money, providing for the future and improve the standard of living. Once we are past the academia, it is money that plays the biggest part in our life.

And our education system does nothing to help us. As we grow in to our lives, focused on our career and on money, we pay little attention to what we do with our money and what are the possibilities, the risks, the opportunities. In the wonderful book, “Rich Dad Poor Dad”, Robert Kiyosaki says:

“If you are going to build the Empire State Building, the first thing you need to do is to dig a deep hole and pour a strong foundation. If you are going to build a home in the suburbs, all you need to do is pour a 6-inch slab of concrete. Most people, in their drive to get rich, are trying to build an Empire State Building on a 6-inch slab”.

Investment and money matters have to be taught when one is a child. By the time one grows up, that lesson has less impact. If you read about Warren Buffett, he started to buy shares when he was eleven! He was handling money, earning money even before then!. He could build the tallest Empire State Building ever, in terms of wealth.

Every child matures at a different rate. Start them young on matters of money. This will also get rid of their fear of numbers or ‘innumeracy” which afflicts a vast majority of us. Generations have progressed from lack of money to becoming wealthy families. There is a natural tendency to protect the young. We want to ensure that they are not hurt by failures. We are around to do their every bidding. Every wish and want of theirs is fulfilled. With so much going for them, what will be their motivation in life? What will be their reason or excuse for a meaningful or purposeful life?

Our education system is unfortunately in a permanent limbo between politicians at the states and the Centre. Thus, any real life lessons will have to come from parents. It can realistically commence from that generation of parents who have fulfilled the common needs like housing and are giving their children a good education. Start the children early with money. While my father had not bought a house and we were in poor circumstances (even the five rupees a month fees was always in arrears) he taught me the importance of money. I was given the monthly cash and told to manage the household. My mom was the guide to spending frugally. It was when I learnt tremendous respect for my mother who seemed to make the rupee stretch so far. I had to keep tabs on expenses and my dad would keep discussing with me. My dad had a failing business and I learnt to write books of accounts while still in school.

Each one of us should start our child early.  Maybe my first salary was a princely sum of Rs.500/- and it was closer to my retirement that I started having ‘surplus’ cash flow to invest. However, I am sure that my children’s’ first paycheck would be bigger than my last one. If I have given them everything, then the money will be burnt in consumption. The fault will not be theirs. It will be mine for not having taught them the ‘value’ of money. Today, if I take a ‘dipstick’ survey of teenagers, I am sure that nearly ninety percent will not know of ‘compound’ interest! We parents have sheltered them from all bother.

Discussing money with children, explaining to them the basics of a bank, a fixed deposit, a mutual fund, of shares etc are good things. You could give them money to buy shares. No better motivation if you can afford it. However, you will fail if you just give them the money and not discuss outcomes. If you are shy or innumerate yourself, have a good friend teach them the basics. Let them handle the household budget. Pay them for meeting goals.
The US has DECA ( ) . We do not have anything like this for children. They also have the ‘stock market game’ ( ). I even recall the US Federal Reserve had comic books outlining the workings of the banking system!!  These are wonderful initiatives that help in financial literacy. Till such time we have such things in India, parents will have to be the financial teachers for their children. Most of us are financially illiterate. Let us not condemn our children to continuing the tradition.

“Singing in the Lifeboat” – A book review

(If I had never met with Ian Bain, I do not think I would have read this book. It was my good fortune to have met Ian. Apart from being a fabulous host, he is also a great story teller. Ian has had a fabulous life- Moving from town to town and school to school in Scotland, not finishing his school, working for a newspaper at 15 and then a sailor, a smuggler, a sub editor , an entrepreneur and then treading the path spiritual. All this in one lifetime! I will wait for more stories from Ian)

Ian Bain has given us a glimpse in to his Life. From a disturbed childhood, lack of ‘formal’ education to becoming a sailor, a journalist, a successful public relations entrepreneur … his life is anything but ordinary.

Living for the day, Ian moves from country to country, job to job, has his battles with the bottle and finally finds peace in his spiritual pursuit.

The book is fast paced. Makes you want to know what happens next to Ian before you can put the book down.

The writing is easy, and Ian succeeds in putting a smile on the reader’s face even as you go along the most turbulent of his life phases.

A truly remarkable journey in a single life. Not many of us are privileged to have so much excitement and learning.

The title is very apt. Ian moves from one potential shipwreck to another all the while, without losing his charm or cheer. If I change the timelines of history, I will say that Robert Bruce was inspired by Ian.

I am sure Ian must have had his days of gloom, but as I read the book, they disappear among the words and the turning of the pages.

Ian’s editorial skills are imprinted across the book. He wants to make sure that the reader is not burdened with any boredom. He has succeeded. I finished the book in two sessions.

In this book, are hidden many more books. Ian’s time line spans a period that has seen remarkable changes. And Ian has been in ‘happening’ places all along. As a reader, I would love to have Ian tell me stories of Dubai in 80s, of ocean voyages, of his bootlegging booze to Bombay, the Simla he saw that was frozen in time, the America that he experienced. He is a story teller nonpareil. He makes fishing sound interesting even to a vegetarian like me.

I am fortunate enough to have met Ian. Ian and Sharadha are wonderful people and hosts that did not make us feel like guests. And Leela, another wonderful host at their place.

Ian and Sharadha’s tryst with spirituality and healing tops off the book. Even here, it is ‘giving’ and doing good. Good at heart and at hearth, I wish them forever years of happiness and togetherness.

I am waiting for his next book on Baba, the real Slumdog… And then on Leela… And then on….

Go get a copy of the book. You will not regret it.

This is where you could get one: