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If Calcutta is the City of Joy then Bombay is the City of Apathy. Today is Republic Day which marks the day when the Indian Constitution was adopted and it also happens to be the 2 month anniversary of the November terror attack. What has changed since November 26? Sadly not much. During the attacks everyone in India was calling it “their 9/11″, the comparison is a joke. During 9/11 the mindset of Americans changed within minutes of seeing planes being flown into the World Trade Center.

The local media that I so highly talked about during the attacks is now missing, they have moved onto the latest news story – The Satyam Scam. The foreign media is more concerned, CNN is running a special on a little girl named Moshe that was saved by her maid while her parents got slaughtered at Nariman House. All the candles that were lit in protest helped boost sales for the candle makers but did little else. The cops in Bombay are as unprepared as ever still wielding their government issued bamboo stick and whistle. You would think the incoming Chief Minister of Maharashtra would make a speech and lay out his plans to avoid another attack – wrong.

Here we sit two months later and many unanswered questions remain about the attack:

• When is the trial of the only surviving terrorist Kasab?
• What is India planning to do about Pakistan?
• How is the state government going to provide better security?
• The updated death and injury count

I believe it’s an economic issue as well. Since the Indian government is fairly inept, people don’t have the luxury to sit around and cry while waiting for the government to help. They have to get back to reality and pickup the pieces on their own. 9/11 is and always will be a defining moment for the US, for India the November attack was just another event to showcase how clueless the Indian government is.

It’s earnings season in India, but most companies aren’t earning a dime so I like to call it “losing season.”  People are rapidly losing trust and the latest revelations from Satyam that over 14,000 employees were really just phantom employees doesn’t help. The biggest company in India Reliance Industries announced their quarterly numbers on Thursday and as expected they were good.  And that is the problem, if Satyam can manage 14,000 “employees” then what is really happening behind the scenes at Maker Chambers 4, the HQ for Reliance. Actually people do know what is happening but rather not talk about it, Reliance is too big to fail.  After the Satyam scam research analysts were all over the books of other IT companies, but  when Reliance announced their numbers not a single question. To ask a question is the equivalent of suicide, the Reliance machine is too big and powerful. Reliance = India = Reliance.

Other companies that are reporting their numbers seem to be using the “forex losses” line item to account for their pathetic performance. It’s almost comical how they say it with a straight face, it’s similar to “the dog ate my homework” excuse. As I’ve said before many of these companies were using their excess cash to speculate in the markets and now that the market has gone against them they are screwed. Currency fluctuations can slam a company but that is what currency hedging is all about if it’s done correctly. Instead many tried to speculate in the currency markets as well and ended with “forex losses” that would appear legitimate in a companies normal business operation. Of course, they can’t say they were speculating so they just use the “forex loss” line item to wash away their sins…for now.

Last weekend was the 2009 edition of the Mumbai Marathon. For the 3rd time I participated in the Mumbai half marathon (13.1 miles, 21.1km). I ran the half  in 2:07:14 which is a personal best for me, the previous 2 Mumbai half marathons I completed the run in 2:16. I ran over 200 miles practicing for the half marathon and expected to shave maybe 5 minutes off my time, but to shave over 9 minutes off my time felt pretty damn good.

As you know I rarely talk about movies on my blog, but Slumdog Millionaire is one of the best movies I’ve seen in a long, long time. The story and cinematography are unmatched, the dynamic story is about an impoverished boy from the slums that wins millions – an underdog story.  The true underdog of this movie is director Danny Boyle, for an outsider to come into India, a country that produces more movies then anyone else, and create such a quality product is a story by itself.  Of course, Bollywood is now trying to jump on the Slumdog bandwagon but make no mistake this movie was made because they all stayed away.  Director Karan Johar has stated his formula for creating movies is what NRI’s (non-resident Indian’s) like, in reality it’s just sugar coated garbage.

The Oscar nominee list will be available on Jan 22 and seeing that Slumdog just sweeped 4 awards during the Golden Globes they have a shot at an Oscar.

Slumdog gets released in India on Jan 23, if you can wait you can download the torrent file.

The implosion of Hyderabad based Satyam has got everyone talking about “the scam” and asking how it was allowed to go on for so long. The Satyam saga has the chance to really show how India has changed since 1991 when new economic reforms were introduced.  If Satyam and all the involved players get dragged into a 20 year court battle then it’s clear nothing has changed. SEBI needs to show leadership and not crack because of  political pressure. They need to prosecute and penalize the individuals and companies that allowed the accounting scandal to go undetected for so long. To really show the Indian and institutional investor things have changed, below is my laundry list:

• Rama Ragu – Taken into custody within 48 hours and starts to serve a jail sentence within 6 months of a hearing.
• Srinivas Vadlamani (Satyam CFO) – Any money made on Satyam stock is paid back. Jail time.
• G. Jayaraman (company secretary) – Any money made on Satyam stock is paid back. Jail time.
• Teja and Rama Jr. (his two sons) – Jail. You can’t tell me these two had no idea. Their dad announces a major acquisition of THEIR companies but it’s all a shame transaction?
• Other Saytam employees – Any money made on Satyam stock is paid back. Jail sentences for all of them.
• Board of Directors (BoD) - Payback any money made as a BoD member. Barred from any other BoD position, honestly I can’t see anyone hiring them anyways.
• Srinivas Talluri (partner at PwC) – Severe financial penalty. Disbarred from working for 10 years. Jail time.
• Other PwC employees involved –  Severe financial penalty. 
• PwC India- kicked out of the country for 15 years. 
• Any political person involved – okay, now i’m pushing my luck

If even half of my wish list comes true then I think it’s a big step forward for Indian corporate governance.

The biggest winner in all this might be the actual clients of Satyam.  This gives them a chance to exit their contracts due to a material change or fraud.  This will allow clients to renegotiate with other vendors at cheaper rates or totally can projects.

Cook as in cooking the books. Satyam is the 4 largest IT major in India and was started by Rama Raju. Today he dropped a massive bombshell that involved an accounting scandal which sent the stock tanking 77%, it closed at Rs 40.25 a share (the 52 week high was Rs. 542). Rama faxed a letter to SEBI Wednesday morning where he outlined the level of fraud and why he did what he did. The letter tries to show him as the knight in shining armor trying to rescue the company…what a crock of sh!@#. According to the letter he is solely responsible and nobody knew anything but him, even though Satyam has over 53,000 employees, had 9 directors on the board and PwC as the auditor.

The meaning of Satyam in sanskit is truth, which brings me to this point about trust. Who can you trust? The founders of the company? The board of directors? The auditors? The analysts? The regulators? The ratings agencies?

To quote a line from my spiritual advisor – LA rapper 2Pac Shakur:

Before I go to sleep
Tell me, who do you believe in?
Who do you believe in?

So why did he do it? The usual culprit is pump up the numbers to drive the stock price up (aka pump and dump). Based on my extensive research (using google and talking to one person) I have two theories:

1. The numbers for the past several years were pumped up by using the cash on the balance sheet to play in the equity markets. When the markets fell last year, that cash disappeared. Is this likely, maybe. When I came to India a couple years ago, I met with a pharma company that had Rs 50 CR on the books and wanted to invest in the equity markets. They said “why invest in our business when we can make 30-40% in the markets.”

2. Government payoff (read bribe). IT companies in India are usually free of corruption but infrastructure and real estate companies are the exact opposite. Rama has two sons – Teja (runs Maytas Infra) and Rama Jr. (runs Maytas Real Estate). Where did Maytas Infra get the money to “win” the contract for the Hyderabad Metro project?

I would highly recommend reading the letter he faxed to SEBI, below is the best line from the letter:

It was like riding a tiger, not knowing how to get off without being eaten

Update:
The lead partner from PwC who handles Satyam is Srinivas Talluri, you can email him at srinivas.talluri@in.pwc.com to get all your questions answered.

Goodbye to 2008 and HELLO to 2009. I’ll keep this post short and sweet, my resolution for 2009 is around getting back to basics.

Also, if you are reading this via an RSS reader, checkout my new blog layout. It’s a whole new interface for 2009.