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Can you smell it in the air? Yes, the Indian general elections are just around the corner and the mud slinging between the political parties has just started.  Elections will be held in 5 phases from April 17 to May  16, 2009. This is my first general election and since I can’t vote in India, I’m using the opportunity to learn about the election process, the political landscape and how it differs from the US.

The general election will decide which candidates get elected to a 5 year term to the Lok Sabha which is the elected lower house of the Parliament of India. This is where all the action takes place, it would be similar to the US Senate.  There are a total of 543 seats up for election in the Lok Sahba.  Each one of those 543 seats are similar to a golden ticket from Willy Wonka, once elected you are set for life and decide what projects and how much of a “fee” you should receive for your district.

There are two main political parties in India, the Indian National Congress and the Bharatiya Janata Party aka the BJP.  There are also many other smaller groups that end up partnering with the bigger ones to create an alliance. The biggest of these smaller parties is the Samajwadi Party.  Once a political party has a majority in the Lok Sabha, that party can decide who will be the Prime Minister. Which means the general population does not vote for a Prime Minister.

Over the past several weeks each of the political parties have released their manifesto which details what they plan to do over the next 5 years. I like about the documents because it gives a true read of what the real issues are on a national level.  It’s also depressing because when you read them you soon realize the basics – food, water, electricity and security are top of mind issues. Both Congress and BJP have promised to provide 25-35kg of rice/wheat at Rs 2-3/kg to poor people – wow!  Now that’s pandering to the people and shows what the real issue is for most Indians – food.

Congress Party Manifesto
BJP Manifesto

Over the weekend the Samajwadi Party released their manifesto and a couple of their keys points: don’t use computers to replace jobs and ban english speaking schools.  They have back tracked on what they meant but the damage is done, it’s pretty clear they don’t want to see the country move forward, status quo is fine. They said they don’t want to ban english speaking schools but rather english speaking schools should not be mandatory since they are too expensive. Logically, they should figure out how to reduce the price of english speaking schools and make it affordable. As far as computers, how do you argue with an idiot.

On a more local front, I looked at the candidates that were running for the South Bombay district and who might actually impact my daily life.  There are a total of 14 people running, no one from the BJP Party but from the Congress Party is Milind Deora. Milind has held the position since the last election in 2004. The other notable candidate is an independent named Meera Sanyal, she is currently on sabbatical from ABN-Amro where she was the country head.

One thing I don’t hear anyone talk about is a debate between various candidates. I would think at least in the major metros the top candidates would use the debate to talk about their views and challenge the other candidates. However, I get the feeling no one truly wants to be put on the spot and rather trade sound bites via the media.

For up to the minute election news check out Google’s 2009 Lok Sabha election website.

Web 1.0 was about commerce and Web 2.0 is all about social.  MoneyVidya is a social stock investing site geared for the Indian stock market. The idea is pretty simple – once you sign up for MoneyVidya you can make stock recommendations, then MoneyVidya tracks the return and riskiness of the stock picks. Based on the aggregate performance of your stock picks, you get a rating based on 1 to 5 stars. The concept makes sense and thrives off the idea that a good portfolio manager can be found anywhere and not necessarily have to wear a suit or show up on CNBC.

However, the timing of the site might be a bit off as many people are turned off by the stock market but that might separate the real portfolio managers from the posers. Gautam Kshatriya, the founder, sums it up best “It would be silly to deny that market conditions have hit us. But we’re going to hang on. Besides, the users that join a site like this in the beginning are ‘passionate’ investors anyway, who are likely to be in the market no matter what.”

The back and forth between the Indian government and the Indian Premier League (IPL) came to head on Sunday. The fledging IPL finally decided to cancel having the series in India.  Now the IPL is looking to host the series in a last minute switch to either South Africa or the UK.  The Indian government apparently wants the entire country to come to a standstill during elections. Yes, elections are important but what sort of message does this send to the world that the Indian government cannot handle two events at the same time: general elections and a 6 week cricket series.

Personally, I think it has more to do with money then security.  Let’s be real, Bombay was attacked on Nov 26 and since then no major change in internal security in Bombay. I’m sure several well placed government officials saw how much money was made by the IPL last year and used the security card as way to get access to the IPL money train.

Lalit Modi the man behind the IPL was very diplomatic when speaking to the press and saying “no one was to blame” for the IPL being moved offshore. And, all team owners talked about how great it is that the IPL is going to continue. True, the IPL might continue in another country but that is an option which needed no go ahead from the Indian government, it was a last ditch effort.

The biggest loser so far seems to be Raj Kundra, who back in early February bought a 12 percent stake in the Indian Premier League (IPL) team Rajasthan Royals for USD 15.4 million.

Doesn’t Look Favorable = DLF. India’s largest real estate developer DLF announced their 3rd quarter earnings this past week and it was not pretty.  I think we all understand the economic environment is grim and the real estate market is REALLY grim but hearing Rajiv Singh, DLF Vice Chairman, speak on CNBC-18 you get the sense it ain’t so bad…whatever.

There is no denying it, most real estate developers around the world and in India are living on borrowed time and borrowed money. Rajiv also stated in the same interview that he doesn’t expect homes prices to get cut beyond 20% yet they have a hugh amount of excess inventory.  Rajiv mentioned people are not buying because bank rates are too high, I think what’s high is either home prices or Rajiv or probably both.

Real estate projects can simply be classified as:

1. New – in today’s environment only a complete moron would loan a dime to a new project
2. Partial – Hugh dillema, throw good money after bad?
3. Completed – sell or lease at rock bottom prices, this screws up the initial project cash flow calculations. Existing tenants will ask for a rate negotiation (read – lower prices)

For DLF the numbers don’t add up and they are massively over leveraged which is not a good thing.  Will DLF or any Indian real estate company file for bankruptcy?  No chance, Indian corporate law is so convoluted that filing for bankrupty doesn’t seem to be an option, instead the company will just be a zombie of it’s former self.

Previous posts on DLF:
May 2, 2006 - India’s next crorepati (billionaire): KP Singh
June 8, 2007 - Yes, DLF. Really?
Oct 10, 2008 - Boom to Bust

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.

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.