Demonestisation - endgame redux

In my first blog on demonetisation ( http://forsec.blogspot.in/2016/11/you-hustle-you-deal-you-steal-from-us.html ) i had said we have to wait for the dec'16 and mar'17 tax numbers to arrive at the conclusion as to whether the parallel economy is finally moving mainstream. this chart shows that at an average growth of 13.5% for the two months of nov-dec, it ties in with my band of 4.6% to 17.6% .

A lot needs to be done and already the banks have shown their true colours by imposing an additional 1% transaction fee on debit/credit cards. Refer  my earlier blog on this ( http://forsec.blogspot.in/2016/11/fight-good-fight-post-demonetisation.html) where i had said that banking fees is one area that needs to be regulated - these should be pass through and not a profit centre for banks - its that simple and i am sure easily implemented by a RBI notification. govt departments can set the tone by making all their digital transactions free for the customers, which still hasnt happened! (update - the govt has started to make their transactions cost neutral)

March'17 tax figures will tell us how far demonetisation has resulted in reducing the parallel economy and also company results will tell us how much they have been impacted. A higher Rabi sowing of 6% has already shown that more of the formal economy has been used this time around to finance agriculture, whether this results really in a higher final production when procurement happens, we will know at the time of harvest.

At the beginning of the demonetisation move i had warned that this was the endgame for the informal economy, as the government will follow it up with more measures to go after those who are happy with an "informal setup". The recent announcement to use CA's to review the banking data to identify people who are potential tax dodgers is but one of many such measures that the government will be employing to end the informal economy, sooner rather than later. (update - the budget for 2017 has taken many measures to disincentive cash - lets see how this plays out in the fullness of time)

a final reminder from the evergreen epic..
"Being a journalist, Hacker had no particular talent for reporting facts" - the press reporting has to be taken with a pinch of salt as it is clear now that a part of them are pro-govt and a part of them against the govt.
"He can't seem to grasp that I don't want the truth, I want something I can tell Parliament.." - a govt pushed to the wall may just select obfuscation rather than the truth and that would be a bigger calamity than the various scams of the previous govt.
"Perhaps the government thinks that a tax is the best form of defence." - the introduction of GST may be the loophole for the govt as an excuse in the event of a sharp decline in growth and in the event there is no fall in growth - trumpet the success of both demonetisation and GST.

Komalavalli may now rest in peace

With her passing the real J Jayalalitha can now stand up
Now that she is free from the bonds that she allowed to bind her
Now that she is one of the beyond, she can rest
Now that she is the most loved and derided person in TN politics
Her legacy in a strongly patriarchal society is something future women in politics can look up to for strength
Rest in peace for you have earned it.

3 full terms as CM and at the beginning of the fourth she has no equal in TN politics. In charisma only her mentor MGR was greater and he even won an election lying in an hospital in the US!!

Her 14+years as CM is only surpassed by M Karunanidhi with his 19years which at the end of her current term would have been eclipsed!

Her very heartfelt interview with simi garewal can be seen here
https://www.youtube.com/watch?v=DzqLo_1SPZg  (part 1)
https://www.youtube.com/watch?v=Cf2bU9xD-3E  (part 2)

her wiki is here at https://en.wikipedia.org/wiki/Jayalalithaa

The interview says it all. Contrast this interview with the one with Karan thapar where she had walk out and you will get a glimpse as to the person she was.

May her much maligned and tortured soul rest for she has earned it.

TATA to good governance - Its a Mistry why ?

Good governance and Companies are mutually exclusive events (with a very few exceptions).

All companies promoters only look at what they can take out of the company at the cost of the investor or the lender - which is normally the banks or investors too greedy for their own good who chase junk bonds.

But the real free money is in equity and this is where reputation plays a very important role. Just as in most crime thrillers, its one who has earned ones trust who betrays it and the entire story of how the wrong is righted is scripted, unfortunately in the murky world of corporate finance there is no retribution as long as the regulators, be it the MCA or the SEBI does not do its homework.

For the TATA companies if one were to create an index of their company shares alone, the returns would have fared worse than gold if you exclude TCS and with TCS it just about beats gold - and thats not something to crow about! The systematic way in which TATA companies were used to buy shares in group companies and then these shares were sold to TATASONS when the markets were down ad nauseum till SEBI finally made inter promoter share transfers public is revolting to say the least! now these shares just sit on the group company balance sheets with huge borrowings at the cost of the public shareholder and the voting rights on these shares are exercised by TATASONS. I say why not me? Just as say, TATASONS being a shareholder can vote on the shares held by TATAMOTORS in TATASTEEL, why cant i do it as a shareholder?

That SEBI/ MCA have not forced these shares to be voted upon by a group of Institutions like LIC/any shareholder other than promoter group members picked in random etc is beyond me.

What SEBI/ MCA can do?
get all cross holding investments sold at current market prices in all group companies of single promoters. the monies so realised to be only used to repay debt in the companies books - no dividend is to be paid out.

all royaties for brand/name use are to be stopped - if the holding company wants they can always delink the name and do business - the business will do just as well or as badly!!

Also all investment companies or holding companies need to offer a buyout of minority shareholders once every 2 years. the price can be used as a counter offer by any minority shareholder to buyout the promoters at the price quoted by them as long as he can offer a better price to the remaining shareholders. This will eliminate the obsecene 30-50% discounts on holding/ investment companies and at the same time work as a stick for promoters to decide which companies they need to keep in their group and the ones they need to let go, as they work overtime to make their holding/ investment companies private to avoid this policy.

My investment philosophy has always been guided on how much the management of a company to willing to kill the hen(company) that lays the golden egg(profits). the lesser the inclination the higher the investment quotient. also as the underlying theme is of stealing from the public when there is a fight in Genx the shareholders can benefit as in the case of reliance when the brothers fought and the resulting split gave a 250% return to the shareholders of RIL. neither RIL nor the other group companies are anywhere near their lifetime highs when the market is threatening to make new highs.

Solution to the TATASONS-Mistry spat.

Transfer all group holding shares held from group companies to the Balance sheet of TATASONS along with an equivalent amount of debt from these companies and after that the TATA's and the PALLONJI's can split the pie depending on the fresh capital they can introduce into TATASONS to pay off the huge debt that would have been transferred in. In the event of tussle over any particular company - the more the merrier for the minority shareholders - the one who can bid more will get the same!! this is a win win for the long suffering shareholders though i dont know who amongst the TATA's and PALLONJI's is the winner. That would be the Mistry in all this!!