Views on News

While you would certainly read the reported happenings all over the place, here is a perspective on the happenings that will keep you hooked up over the next fortnight.

The Rupee is slowly getting back to saner levels but…

People have been pointing toward many reasons, from the very obvious to the most unimaginable for the rupee’s slide against the dollar. We at Dalal Street Investment Journal have probably been among the first to not only point out the reasons for the fall of the rupee, but to have provided some very practical solutions of how India can possibly circumvent the dollars supremacy and put its finances back on track. While we hope policy makers and regulators are looking at solutions like these (the ones we provided in our cover story in the preceding issue), here is some more food for thought.

According to reports, Indian firms had been investing heavily in their overseas subsidiaries pushing up the demand for the dollar a couple of months back. In July, USD 3.24 billion found their way out of the country. The RBI's intervention finally saw them taper down their ODIs (overseas direct investments) with the amount having come down to USD 1.94 billion in the month of August. One curious name among the many entities that have been investing in their subsidiaries abroad is that of Financial Technologies. The company has reportedly invested around USD 110 million in two different tranches in its wholly-owned subsidiaries in Singapore and Mauritius. Earlier in the month of July it was reported to have invested USD 12 million in both of these subsidiaries.

For all those who have forgotten or are trying to forget the big mess that another of Financial Technologies’ subsidiary, NSEL is in, this information should come as a startling revelation. While investors have trying to all that is possible to get money out of the troubled exchange, its promoter has been busy transferring money abroad. Would it not be proper for the management of Financial Technologies-led by the ‘astute’ Jignesh Shah to take the NSEL fiasco a little seriously and get it sorted out? Would this not be in their own interest and, of course in the interest of the investors and the markets in general?

Well, questions have been raised, but the answers are still at large. The way things are right now, it seems that the steam is either dying down on its own or is being deliberately killed. Who is to be blamed for this is a bit difficult to say. None of the authorities have been acting against the exchange or its promoters and the so called defaulters who have vanished with those Rs 5500-odd crore of investor money.[PAGE BREAK]

The latest buzz on the issue is, the exchange has a new MD & CEO in place. But before we get into how that would help change the situation, here is something even more interesting. Apparently, in one of the most recent meetings between the aggrieved investors and representatives of NSEL, tempers flew so high that some of the investors reportedly roughed up Amit Mukherjee, Head Marketing at NSEL. Now this is what is really unwanted. Instead of following the law logically, investors seem to be taking the law into their own hands. Probably there are reasons why they are doing so, but then it simply doesn’t work that way. A day after this happened, investors along with the brokers were headed to the EoW to file their official complaint. If that happens, you will certainly see some good and interesting developments on this long drawn drama.

The sum of it all is that, even as we debate on the right and wrong of it, right now the investors and not the wrongdoers are facing the law of the land for having vented their ire. Where are the ministries and the regulators? Hope to hear something from them once the official complaint gets filed. Whatever be the outcome of this drama, corporate governance as criteria of the strength of Indian businesses has certainly taken a severe beating. This should not have happened at least now, when the overall business climate is not very conducive for growth. Here is some evidence about it…

Business is sentimentally down, but is it really out?

According to the latest Thomson Reuters/INSEAD Asia Business Sentiment survey, things aren’t really looking bright. Business sentiment among Asia’s top companies has degenerated badly during the third quarter of the year. This is particularly worrisome as it comes after three straight quarters of improvement says the survey. The Thomson Reuters/INSEAD Asia Business Sentiment Index fell to 66 in the third quarter from 71 in the preceding quarter, which was the highest level it had reached in more than a year. Though on the lower side as compared to that of the previous quarter, it still holds good as any count about 50 indicates an overall outlook.[PAGE BREAK]

So, which are the countries that are really facing the pressure? According to the report, export-oriented north Asian economies like China, South Korea and Taiwan including the regional trading hub of Singapore have shown some marked weakness. Among others, business confidence was steady in Japan at 63, its highest point since June 2010. The best was Philippines which turned out to be the most positive economy with a reading of 100, compared to its reading of 94 in the second quarter. Indonesia ranked the worst with a reading of 25, a sharp drop from its second quarter reading of 100 when it was the most positive.

And, where is India on these charts? From a count of 63 in the second quarter the Indian count has gone up 5 notches to 67 in the third quarter. This clearly reflects the return of optimism to the Indian business shores. Worries are a many but companies in India seem to far more confident of meeting the challenges of a wobbly global economy. Now, one interesting question to ask here is, are the capitalist forces of the western world worried about this confidence of the Indian businessmen? It does look like, if one goes through the spate of investigations that our pharma companies have been subjected to by the US FDA over the recent past. Here is what we referring to…

There are at least five Indian pharma companies which have faced the wrath of the US FDA over the past year or so. These include Wockhardt, Strides Arcolab, Ranbaxy, Fresenius Kabi, RPG Life Sciences. Among these, Wockhardt is probably the worst hit. The company faces a loss of USD 100 million in revenues in FY14, thanks to the warning it has received from the US drug regulator. Accordingly the company will not be allowed to sell any product which is manufactured from its Waluj plant in the US market. Following this, even the UK drug regulator banned the company from selling products that are manufactured at this plant.

What wrong did the company do? The US FDA found torn records of data in garbage and urinals that were emptied in an open drain six meters away from the manufacturing area. How serious are these concerns, so as to warrant a complete ban on the products that are manufactured inside the plant which we believe would certainly be a complete state-of-the-art manufacturing facility? Hadn’t you approved of the facility before allowing the company to sell its products in your country? Yes, had they found such glaring violation of the rules inside the plant, we would have been concerned too. Not that we support such an act, but one has to take an objective view of the situation.[PAGE BREAK]

The other three companies that are facing such reprimands from the US drug regulator are probably of a lower intensity. But the latest in the list of companies to have been banned is Ranbaxy. Two of its manufacturing facilities have been currently put under the scanner by that regulator. Way back in 2008 its Paonta Sahib and Dewas facilities too were warned on grounds of serious deviation from regulatory practices. With two bans already in place and even after having paid USD 500 million in settlement fees the company is yet to get any respite on that front. The new ban on the newly commissioned Mohali facility comes as another major blow to it.

We may not be the best authority to pass a judgement on whether these bans and audits are warranted or not. May be there is a case for some improvement in the business practices. But the moot question that we would like to raise is - aren’t Indian pharma companies supplying generic and off patent drugs at the cheapest possible price globally? What is important – reasonably cheap healthcare costs or undue and unreasonable safety measures? Either way, the loss is that of the patient. Isnt there a need for the US regulator to exercise logical controls which should be more practical and alive to the needs of the people dying under the burden of higher healthcare costs. Or are we missing a point here? Does putting Indian companies out of the market help the domestic drug manufacturer of these imperialist nations?

We hope the Indian government is alive to these possibilities and does intervene at the relevant points in time to ensure that Indian corporates are not being subject to unnecessary regulatory pressures.