When Satyam's problems started in mid December at that time only I thought of not posting much about the same as everybody will be writing about that only in blogs, news papers, TV & etc. But today one of my friend asked me to post some information about pre & post Satyam's CEO Mr. Raju admission of fraud. So today I am just giving brief information what all went on in this one month...
As Mr. Raju wrote in RESIGNATION LETTER inflation of balance sheet went on for several years. According to fresh news coming in now, Raju did it for nearly 7 years. Basically inflation cash/profit/balance sheet is done to inflate the EPS, so to increase the share price and in turn attract the investors. And according one brokerage firm, in India nearly 20% of BSE500 companies inflate the balance sheet for the same reason. So this act of Raju's continued and might have become uncontrolled & difficult to fill the gap between the actual profit & inflated balance sheet as mentioned in his resignation letter.
So at that point Raju might have decided to fill that gap acquiring his family promoted real estate business in the name of DIVERSIFICATION and pay the acquisition amount later. And fit those assets into the built up gap. To this decision investors in domestic & overseas market ADVERSELY reacted by dumping the shares ADRs 30% & 50% respectively.
So to get back the investor's faith for the company, Raju & so called board CALLED OF THE DEAL & DECIDED TO BUYBACK the shares. After this point, Satyam's CORPORATE GOVERNANCE came under heavy criticism. Government ordered PROBE also. In between there were talks about the DIVIDEND also. In addition to all these there came one more sudden shock for Satyam in the form of the BAN for 8 years. Due to all this, independent directors started RESIGNING. By this time Satyam became talk of everybody on the WALL STREET & DALAL STREET. Then ultimate blow came in the form Founder & CEO Mr. Raju's resignation letter and inflating the balance sheet. Within 2 days of this, Satyam stock fell nearly 90% in NSE, BSE & NADAQ. And immediately NASDAQ stopped trading of Satyam stock & NSE, BSE they removed it from the index.
After this, as suggested by Raju (or even other wise, according to seniority) Mr. Ram as the interim CEO and formed the Task force. CFO also resigned. Government superseded the interim body & CEO. And now government appointed three independent directors (banker Deepak Parekh, IT expert Kiran Karnik and former Sebi member C Achuthan) to look after into the matters of the company.
But I am quite surprised to know that, a Company like Satyam which has a base in 60 countries is or was running only 3% margin of profit! There employees salary itself is 500 crore rupees for a month. Even for that also they dont sufficient funds for January month. Now news is coming that government is temperorily bailing out the Satyam by supporting it financially.
Here comes one more question is what the so called auditors (PWC) were doing? Whether they are also involved in this India Inc's biggest fraud of 7000+ crore rupees. Being public limited company also Satyam did this, then what about the private ltd companies???
Now there talk about appointing the CEO & CFO. But I dont know being outsiders, how they are going act immediately which is very necessary now. But what about the reputation as Company it lost already in the national & international arena. Who is going to believe it? How it is going to get the new projects when there is threat of reduction in the outsourcing after Barrack Obama comes to power! What about the employee? How it is going regain their confidence back?
Bottom line:
What I see is the best solution is allow the different companies to acquire the different branches of the company instead of rebuilding the company so that existing employees work under the name of acquired company. Since in this recession period acquiring company as whole will be burden for the companies also. And rebuilding of the Satyam means sacking of 10000-15000 employees or more than that. That hurts more in this recessionary period. For further information CLICK here...
Monday, January 12, 2009
Thursday, January 8, 2009
The Bank of England cuts interest rates to 1.5%, an all-time low
According to ECONOMIST.COM reports, On Thursday January 8th the Bank of England cut the base rate from 2% to 1.5%, the lowest since the central bank was founded in 1694. The Bank of England’s mission then was to provide war finance. Its task now is to fight a recession that looks increasingly likely to be the worst since the second world war.
Article of GURUCHARAN DAS
Today, when I visited blog of GURUCHARAN DAS I found this article very informative to share with you guys. Its about COST OF NATIONALIZATION, RULES OF CRISIS, VICIOUS CIRCLE OF ECONOMY. So here is what Mr. Das has written in his blog...
Speaking of the global financial crisis, Sonia Gandhi recently applauded Indira Gandhi’s bank nationalization of 1969, saying that it had given India ‘stability and resilience’. Like the Bourbons of France our political class neither learns nor forgets anything. I don’t think Sonia Gandhi realizes quite what she was saying.
India’s bank nationalization delivered neither growth nor equity. Any public sector bank manager will tell you how loans were diverted to friends of politicians rather than to commercially deserving farmers. Bad debts of banks rose alarmingly in the 1980s and moral hazards persist.
Indira Gandhi drew us further away from world trade, raised tariffs and taxes, and made us one of the world’s worst performing economies from 1966 to 1989. Industrial growth plunged to 4% a year vs. 7.7 % in 1951-1965. Manufacturing productivity declined half a per cent a year. Rakesh Mohan estimates that her mistakes cost the nation 1.3 per cent lower GDP per capita per year—meaning that our income would have been more than double today. I don’t blame Nehru for adopting the wrong economic model as socialism was the wisdom of his age; I blame Indira for not reversing course as sensible countries in East and Southeast Asia did. Even China changed in 1978, but we had to wait till 1991. She multiplied by zero and put us back by a generation.
But let’s not dwell on the past. India is in the midst of a dire crisis and we don’t seem to realize how much we are hurting. Panic has choked credit worldwide. Our economy is slowing pitifully. Exports are collapsing. Banks have stopped lending. Construction has come to a halt. Fear has taken over, and people are not buying (except mobile phones). As demand shrinks, so do revenues and profits of companies. Investment has stopped and lakhs in textiles and construction are out of work.
The Mahabharata points out that rules of dharma change in times of crisis when one is forced to observe apad-dharma. Paradoxically, defending capitalism requires state intervention. History teaches that decisive government action can stem the pain. If Lehman had been bailed out the world might not have gone over the cliff. But once normal times return governments must sell off the banks that they had bailed out and not leave them as cash cows for politicians, like our public sector banks.
The quickest way to restore confidence is to further cut interest rates, CRR and SLR, and recapitalize banks. Today’s rates are still too high. Since oil and commodity prices have plunged, the risk of inflation has receded. As property prices decline, and as old mortgage terms become available, people will begin to buy the homes they postponed when interest rates rose. When people buy houses, they give jobs to millions. The same goes for other sectors. Consumer spending will raise demand, restore production, and lead to investment. There is a currency risk in this strategy, of course, but the risk of deflation is greater.
Of course, we should spend massively in infrastructure, but the trouble is that even the current programs are not moving. World Bank has threatened to withdraw funding from highway projects. 234 out of 515 Central projects are delayed. Hence, public spending wont work when speed is of the essence. The saving grace is that we have been accidentally ‘pump priming’ via the rural employment guarantee scheme and loan waivers. What we must not do is to close borders no matter how much local industry clamours for protection. In the 1930s every country tried to protect its own industry. World trade declined 60% between 1929 and 1932 and this caused a worldwide depression. We must do everything to protect the fruits of globalization which has lifted millions out of absolute poverty over the past 20 years. No one can predict when the present crisis will be over. Things could get much worse, meanwhile, but capitalism will eventually correct itself.
Speaking of the global financial crisis, Sonia Gandhi recently applauded Indira Gandhi’s bank nationalization of 1969, saying that it had given India ‘stability and resilience’. Like the Bourbons of France our political class neither learns nor forgets anything. I don’t think Sonia Gandhi realizes quite what she was saying.
India’s bank nationalization delivered neither growth nor equity. Any public sector bank manager will tell you how loans were diverted to friends of politicians rather than to commercially deserving farmers. Bad debts of banks rose alarmingly in the 1980s and moral hazards persist.
Indira Gandhi drew us further away from world trade, raised tariffs and taxes, and made us one of the world’s worst performing economies from 1966 to 1989. Industrial growth plunged to 4% a year vs. 7.7 % in 1951-1965. Manufacturing productivity declined half a per cent a year. Rakesh Mohan estimates that her mistakes cost the nation 1.3 per cent lower GDP per capita per year—meaning that our income would have been more than double today. I don’t blame Nehru for adopting the wrong economic model as socialism was the wisdom of his age; I blame Indira for not reversing course as sensible countries in East and Southeast Asia did. Even China changed in 1978, but we had to wait till 1991. She multiplied by zero and put us back by a generation.
But let’s not dwell on the past. India is in the midst of a dire crisis and we don’t seem to realize how much we are hurting. Panic has choked credit worldwide. Our economy is slowing pitifully. Exports are collapsing. Banks have stopped lending. Construction has come to a halt. Fear has taken over, and people are not buying (except mobile phones). As demand shrinks, so do revenues and profits of companies. Investment has stopped and lakhs in textiles and construction are out of work.
The Mahabharata points out that rules of dharma change in times of crisis when one is forced to observe apad-dharma. Paradoxically, defending capitalism requires state intervention. History teaches that decisive government action can stem the pain. If Lehman had been bailed out the world might not have gone over the cliff. But once normal times return governments must sell off the banks that they had bailed out and not leave them as cash cows for politicians, like our public sector banks.
The quickest way to restore confidence is to further cut interest rates, CRR and SLR, and recapitalize banks. Today’s rates are still too high. Since oil and commodity prices have plunged, the risk of inflation has receded. As property prices decline, and as old mortgage terms become available, people will begin to buy the homes they postponed when interest rates rose. When people buy houses, they give jobs to millions. The same goes for other sectors. Consumer spending will raise demand, restore production, and lead to investment. There is a currency risk in this strategy, of course, but the risk of deflation is greater.
Of course, we should spend massively in infrastructure, but the trouble is that even the current programs are not moving. World Bank has threatened to withdraw funding from highway projects. 234 out of 515 Central projects are delayed. Hence, public spending wont work when speed is of the essence. The saving grace is that we have been accidentally ‘pump priming’ via the rural employment guarantee scheme and loan waivers. What we must not do is to close borders no matter how much local industry clamours for protection. In the 1930s every country tried to protect its own industry. World trade declined 60% between 1929 and 1932 and this caused a worldwide depression. We must do everything to protect the fruits of globalization which has lifted millions out of absolute poverty over the past 20 years. No one can predict when the present crisis will be over. Things could get much worse, meanwhile, but capitalism will eventually correct itself.
Yesterday Truckers' & Today PSU of Oil Sector
Yesterday, I posted about the Trucker's strike and its possibility of increasing costs to common in basic necessary things which may halt the falling inflation. Now today I saw in TV, that in almost all Metros 25-30% of the PETROL PUMPS are dried out due to lack supply since PSU oil companies are on strike. According the reports they can manage for couple of more days. What after that? What the government is doing for these kind of strikes particularly in this type of conditions??? Again here common is going to suffer for day today activity if supply didn't revert back to normalcy. According to reports IOC's seven refineries were producing only 40% of their output with production being impacted at its key refineries of Panipat and Mathura.Its Koyali refinery in Gujarat was producing only 25% of the normal output, while BPCL's Mumbai refinery was operating at 70% of its capacity. IOC Director (Marketing) GC Dagga said the product offtake from refineries was only 10% yesterday and this was causing supply constraints.
Courtesy
TOI
Courtesy
TOI
Inflated Inflation for common man!
Guys, you may remember that last time I wrote about problem with our inflation numbers. In that I clearly mentioned that first problem with our Indian Inflation system is, it doesn't represent what a common man like me and you pay for something due to various reasons. And those reasons I have mentioned also in that post.
Today, I am again posting about that but with some numbers & graphs, how a common is still paying high when headline inflation is almost halved from its peak levels. Just by looking at below graph you will come to know.
In graph you can see that, from August Inflation started coming down, from its peak levels 12.91%. But from same point onwards, index for CEREALS & PULSES started raising 6% & 5% odd levels to 9% & 13% odd levels. There might be various reasons for this...
First list of the WPI commodities is not properly updated as per the requirement. And of course its WPI, not CPI...
Second failure in administration. Because there might be possibility of hoarding in some parts since even though supply has increased compared to last year & demand dropped internationally. In addition to this, now government is facing the problem of TRUCK STRIKE from last 3-4 days. This will immediately affect the supply sides nearly 7-8 strikes where in strike is going.
And last but not the list there are various other possibilities like possible increase in domestic demand, higher cost of input and increment in the minimum support provided by central government.
BOTTOM - LNE:
Whatever may be the reasons for above mentioned problem, our measurement system must replicate the present situation of COMMON MAN rather than that of WHOLESALERS.
Today, I am again posting about that but with some numbers & graphs, how a common is still paying high when headline inflation is almost halved from its peak levels. Just by looking at below graph you will come to know.
In graph you can see that, from August Inflation started coming down, from its peak levels 12.91%. But from same point onwards, index for CEREALS & PULSES started raising 6% & 5% odd levels to 9% & 13% odd levels. There might be various reasons for this...
First list of the WPI commodities is not properly updated as per the requirement. And of course its WPI, not CPI...
Second failure in administration. Because there might be possibility of hoarding in some parts since even though supply has increased compared to last year & demand dropped internationally. In addition to this, now government is facing the problem of TRUCK STRIKE from last 3-4 days. This will immediately affect the supply sides nearly 7-8 strikes where in strike is going.
And last but not the list there are various other possibilities like possible increase in domestic demand, higher cost of input and increment in the minimum support provided by central government.
BOTTOM - LNE:
Whatever may be the reasons for above mentioned problem, our measurement system must replicate the present situation of COMMON MAN rather than that of WHOLESALERS.
Wednesday, January 7, 2009
Resignation Letter of B Ramlinga Raju
As soon as Mr. Raju announced the RESIGNATION with admission of FRAUD, SATYAM stocks as well as market started crumbling down. Finally markets closed almost 7% (both BSE & NSE) and SATYAM closed with 78% down (Rs. 140 down from its previous closing 179).
Here is link for Mr. Raju's resignation letter which started a storm in financial markets....
http://www.outlookindia.com/specialfeature/Satyamletter.pdf
Here is link for Mr. Raju's resignation letter which started a storm in financial markets....
http://www.outlookindia.com/specialfeature/Satyamletter.pdf
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