The checks and balances that govern the accountants' working are not enforced with any rigour.
Gautam Chikermane
AT RS 50,000 crore, the most valuable company on the Indian stock exchanges is Hindustan Lever. About 2.5 million of its shares are traded every day. There are 131 mutual funds–investing on behalf of hundreds of thousands of investors–that hold this company, of which 111 have it among their top 10 holdings. Together, they have invested almost Rs 2,000 crore in the company. This is aside from over Rs 10,000 crore other investors have invested. Why? Because this MNC has been among the best companies in India. Why do I say that? Consistently good performance– over the past 10 years, its sales have grown at 22 per cent and net profits at 34 per cent per annum. Who says so? The company’s accountants, A.F. Ferguson and Lovelock & Lewes. As a financial journalist, it’s my job to study the balance sheets and profit and loss statements of companies. When I pore over an annual report, I assume that the accountants who have passed the accounts written by the company have checked the numbers, tallied them and presented them so that an investor can make an informed decision to buy or sell the stock; lenders can decide whether the company has the capacity to pay back; and tax authorities can see whether it has paid the taxes due.
But what if Lever’s accountants were wrong? Worse, what if they had been conniving with the management to deliberately misinform, say, by overstating profits so that the share price did not plunge, or understating them and diverting the excess money into the pockets of the directors (and themselves)? Will the Lever stock that has appreciated over 15-fold in the past decade inspire the same loyalty in future? Will it continue to be sought after? Will it continue to be valued higher than peers Procter & Gamble or Nirma, whose PE (price-to-earnings) ratios are 20 to 25 points lower? Will it continue to attract the top talent from business schools and from across corporate India? The recent high-profile debacle of Enron has all the answers.
Column in Outlook Money
Friday, March 15, 2002
Wednesday, January 30, 2002
We need our luxuries, if we can call them that
Our notion of 'basics' and luxuries' is not cast in stone. The big car that is a luxury today will seem to be necessary tomorrow.
Gautam Chikermane
IF BEYOND the basics, everything is a luxury, the question is: what are the basics? Quite like the definition of ‘terrorist’ (one man’s terrorist is another man’s freedom fighter), the definition of ‘basic needs’ varies–one man’s necessities are another man’s indulgence. The Random House dictionary defines ‘necessity’ as "something necessary or indispensable" and ‘luxury’ as "a material object, service, etc., conducive to sumptuous living, usually a delicacy, elegance, or refinement of living rather than a necessity". Unfortunately, in their application, these definitions take us nowhere–the possibilities of stretching them to suit our beliefs are so high that they might as well not exist.
What is necessary? At one level, just food, clothes, shelter, education and healthcare. But my definition is just as subjective as any other, even though for millions around us even two meals a day is a daily battle and shelter certainly a luxury. The point of this exercise is not to arrive at absolute definitions, but to underline the relativity of the various shades of meaning a word acquires in its context–the context, in this case, being our station in life, which must condition our perception of ‘basic needs’ and ‘luxuries’. When I was in college, I would, like all my friends, travel in a DTC bus. As we stood waiting at the bus stand, I would hope first, to be able to get on the crowded bus; then, get a corner to lean my backside on; then, to find someone who would be considerate enough to share his seat with me; then, get a seat to myself; then, have a pretty girl sitting next to me; and so on. How quickly luxuries become necessities! Everything we already have is a necessity (but of course), and the next thing we aspire to will become a necessity soon as we have it.
What is a luxury? Christopher J. Berry, professor of political theory at University of Glasgow, explores the meaning of luxury in his 1994 book, The Idea of Luxury: A Conceptual and Historical Analysis. He defines luxuries as objects of desire that provide positive pleasure (as against necessities, which are utilitarian objects that relieve an unpleasant state of discomfort). So, while we may get along fine without our car, our computer, our cellphone and so on, before we knew it, each of these things became a necessity in our lives. We can continue to survive on food, clothes and shelter, but that car is no longer a luxury. At what point did that happen?
Column in Outlook Money
Gautam Chikermane
IF BEYOND the basics, everything is a luxury, the question is: what are the basics? Quite like the definition of ‘terrorist’ (one man’s terrorist is another man’s freedom fighter), the definition of ‘basic needs’ varies–one man’s necessities are another man’s indulgence. The Random House dictionary defines ‘necessity’ as "something necessary or indispensable" and ‘luxury’ as "a material object, service, etc., conducive to sumptuous living, usually a delicacy, elegance, or refinement of living rather than a necessity". Unfortunately, in their application, these definitions take us nowhere–the possibilities of stretching them to suit our beliefs are so high that they might as well not exist.
What is necessary? At one level, just food, clothes, shelter, education and healthcare. But my definition is just as subjective as any other, even though for millions around us even two meals a day is a daily battle and shelter certainly a luxury. The point of this exercise is not to arrive at absolute definitions, but to underline the relativity of the various shades of meaning a word acquires in its context–the context, in this case, being our station in life, which must condition our perception of ‘basic needs’ and ‘luxuries’. When I was in college, I would, like all my friends, travel in a DTC bus. As we stood waiting at the bus stand, I would hope first, to be able to get on the crowded bus; then, get a corner to lean my backside on; then, to find someone who would be considerate enough to share his seat with me; then, get a seat to myself; then, have a pretty girl sitting next to me; and so on. How quickly luxuries become necessities! Everything we already have is a necessity (but of course), and the next thing we aspire to will become a necessity soon as we have it.
What is a luxury? Christopher J. Berry, professor of political theory at University of Glasgow, explores the meaning of luxury in his 1994 book, The Idea of Luxury: A Conceptual and Historical Analysis. He defines luxuries as objects of desire that provide positive pleasure (as against necessities, which are utilitarian objects that relieve an unpleasant state of discomfort). So, while we may get along fine without our car, our computer, our cellphone and so on, before we knew it, each of these things became a necessity in our lives. We can continue to survive on food, clothes and shelter, but that car is no longer a luxury. At what point did that happen?
Column in Outlook Money
Saturday, December 29, 2001
Budget 2002: The citizen's charter
Open reinvestment avenues for newly created wealth; amend laws to breathe life into dead sectors like housing.
Gautam Chikermane
JANUARY IS when finance ministers hold court with the bigwigs of business and the fat cats of finance, so their demands can be heard ahead of the year’s budget. That exercise this year will be conducted between January 7 and 9. The average citizen is unrepresented, and goes unheard, in these confabulations. So, here’s an attempt to lend voice to some of his demands and recommendations to create a framework that is conducive to wealth creation by and for that average citizen:
Column in Outlook Money
Gautam Chikermane
JANUARY IS when finance ministers hold court with the bigwigs of business and the fat cats of finance, so their demands can be heard ahead of the year’s budget. That exercise this year will be conducted between January 7 and 9. The average citizen is unrepresented, and goes unheard, in these confabulations. So, here’s an attempt to lend voice to some of his demands and recommendations to create a framework that is conducive to wealth creation by and for that average citizen:
Column in Outlook Money
Monday, December 17, 2001
There's much more to life than your job
People who equate self-worth with status find life turned upside down when they are handed a pink slip.
Gautam Chikermane
RECESSION WAS already looming on the horizon when four aircraft decided to ram it home to you. In less than a week after September 11, thousands lost jobs; in less than a month, hundreds of thousands more; over the next one year, 24 million are expected to be jobless. In an increasingly networked world, the effects of these job losses have been felt far and wide. Here in India as well. Layoffs don’t just affect your income, your financial security. All too often a job loss brings in its wake a fast-diminishing sense of self-worth, self-possession. With no phones to answer, no car to drive in, nowhere to drive to, nobody to deal with–all the familiar trappings of being successfully, gainfully employed–it’s easy to feel desolate and redundant.
But it’s also a misguided feeling. If a job alone decided our status and gave meaning to our lives, this whole business of creation would have been quite meaningless. Sure, a job is important–it’s our means to a regular income and to a position in society. But most important, it’s a vehicle of self-expression. There is such a thing as our calling, our dharma. When we’re lucky, the work we do is the work we were meant to do. When we’re not so lucky, we either find meaning in the work we do, or lead meaningless lives that pivot on the paraphernalia of our job–salary and status.
Column in Outlook Money
Gautam Chikermane
RECESSION WAS already looming on the horizon when four aircraft decided to ram it home to you. In less than a week after September 11, thousands lost jobs; in less than a month, hundreds of thousands more; over the next one year, 24 million are expected to be jobless. In an increasingly networked world, the effects of these job losses have been felt far and wide. Here in India as well. Layoffs don’t just affect your income, your financial security. All too often a job loss brings in its wake a fast-diminishing sense of self-worth, self-possession. With no phones to answer, no car to drive in, nowhere to drive to, nobody to deal with–all the familiar trappings of being successfully, gainfully employed–it’s easy to feel desolate and redundant.
But it’s also a misguided feeling. If a job alone decided our status and gave meaning to our lives, this whole business of creation would have been quite meaningless. Sure, a job is important–it’s our means to a regular income and to a position in society. But most important, it’s a vehicle of self-expression. There is such a thing as our calling, our dharma. When we’re lucky, the work we do is the work we were meant to do. When we’re not so lucky, we either find meaning in the work we do, or lead meaningless lives that pivot on the paraphernalia of our job–salary and status.
Column in Outlook Money
Saturday, December 1, 2001
Two-timers will rule
In these uncertain times, the key to staying employable is to acquire new skills and work on alternative careers.
Gautam Chikermane
IT’S NO longer in the realm of idle speculation or caged in the fertile minds of futurists–the age of simultaneous careers is upon us. It’s right here, knocking at your mind’s window, urging you to get going before you’re asked to go. If that sounds alarmist, here’s an eye-opening statistic: the International Labour Organisation estimates that 24 million jobs will be lost worldwide by the end of next year. In your 40s, even if you are safely ensconced in your career, you’ve probably gone as far as you can. As Peter F. Drucker points out in his latest article in The Economist: "A growing number of highly successful knowledge workers of both sexes–business managers, university teachers, museum directors, doctors–‘plateau’ in their 40s. They know they have achieved all they will achieve. If their work is all they have, they are in trouble."
Last month, in the US, I saw the first, most obvious signs of "trouble". During the one month I was there, the big American companies handed hundreds of thousands of workers the pink slip, even as the government did all it could to protect the profits of the very same corporations through a $150 billion bailout package. The story is only slightly different here. When we launched Intelligent Investor in July 1998, industry was in the throes of a recession and pink slips were flying all over the place. When the great dotcom dream soured, we witnessed a replay of the predictable industry response to slowdowns–mass layoffs hiding behind smart euphemisms like restructuring, rationalising, rightsizing...
Column in Outlook Money
Gautam Chikermane
IT’S NO longer in the realm of idle speculation or caged in the fertile minds of futurists–the age of simultaneous careers is upon us. It’s right here, knocking at your mind’s window, urging you to get going before you’re asked to go. If that sounds alarmist, here’s an eye-opening statistic: the International Labour Organisation estimates that 24 million jobs will be lost worldwide by the end of next year. In your 40s, even if you are safely ensconced in your career, you’ve probably gone as far as you can. As Peter F. Drucker points out in his latest article in The Economist: "A growing number of highly successful knowledge workers of both sexes–business managers, university teachers, museum directors, doctors–‘plateau’ in their 40s. They know they have achieved all they will achieve. If their work is all they have, they are in trouble."
Last month, in the US, I saw the first, most obvious signs of "trouble". During the one month I was there, the big American companies handed hundreds of thousands of workers the pink slip, even as the government did all it could to protect the profits of the very same corporations through a $150 billion bailout package. The story is only slightly different here. When we launched Intelligent Investor in July 1998, industry was in the throes of a recession and pink slips were flying all over the place. When the great dotcom dream soured, we witnessed a replay of the predictable industry response to slowdowns–mass layoffs hiding behind smart euphemisms like restructuring, rationalising, rightsizing...
Column in Outlook Money
Saturday, September 15, 2001
Saving is not equal to investing
We save to tide over difficult times. We invest to pursue financial goals like a comfortable retirement.
Gautam Chikermane
AT 22.3 per cent, India’s savings rate is respectable. And yet India, and Indians, are not wealthy. This high-savings-poor-savers contradiction occurs because we believe in saving for a rainy day rather than in creating wealth. We look at putting money aside for emergencies or even for a comfortable retirement, not to make our money grow and create wealth. We seek the security of keeping our capital intact rather than taking a well-planned risk with it. We focus on saving rather than on investing. One of the problems is our belief in this equation: saving = investing. I have seen even experts confuse these two words and use them interchangeably. While on the face of it they may be the same–in that both sacrifice present consumption for future use–in spirit, they’re not.
Different goals. People save in anticipation of uncertainties–a sudden hospitalisation, being out of a job for six months and so on. It’s all very well when there’s a cheque coming at the end of the month or when business is growing. But when things aren’t so good, this money helps them get by without too much misery. On the other hand, people invest to pursue life goals such as building a house, financing a child’s marriage or a comfortable retirement.
Opinion in Outlook Money
Gautam Chikermane
AT 22.3 per cent, India’s savings rate is respectable. And yet India, and Indians, are not wealthy. This high-savings-poor-savers contradiction occurs because we believe in saving for a rainy day rather than in creating wealth. We look at putting money aside for emergencies or even for a comfortable retirement, not to make our money grow and create wealth. We seek the security of keeping our capital intact rather than taking a well-planned risk with it. We focus on saving rather than on investing. One of the problems is our belief in this equation: saving = investing. I have seen even experts confuse these two words and use them interchangeably. While on the face of it they may be the same–in that both sacrifice present consumption for future use–in spirit, they’re not.
Different goals. People save in anticipation of uncertainties–a sudden hospitalisation, being out of a job for six months and so on. It’s all very well when there’s a cheque coming at the end of the month or when business is growing. But when things aren’t so good, this money helps them get by without too much misery. On the other hand, people invest to pursue life goals such as building a house, financing a child’s marriage or a comfortable retirement.
Opinion in Outlook Money
Wednesday, August 15, 2001
UTI is... UTI is not... UTI is...
More than bad management or low returns, the problem at UTI is a structure that encourages corruption.
Gautam Chikermane
DESPITE ALL claims and actions to the contrary, in its functioning, in its structure, in its very reason for existence, the Unit Trust of India (UTI) is, quite simply, a mutual fund–a medium not only for saving money but equally to create wealth and meet life’s major financial objectives. There are seven main characteristics that make a mutual fund. Had UTI adhered to them, the current crisis would have only been one of bad fund management or low returns–a problem not entirely restricted to UTI. These seven points are why mutual funds are the best investment vehicles, not only in India but across the world. In my opinion, in five of these, UTI scores ‘Poor’, in two it scores ‘Fair’. Overall score: Poor.
Professional management. When an asset management scheme (AMC) floats a scheme, it brings into the product a few of the top minds in the field of finance. These are experienced and skilled professionals whose job is to research companies, analyse industries, crunch numbers, evaluate the future, observe stock prices, interest rates, currency fluctuations and so on. They then match these analyses with the objective of the investors. Only after this rigorous exercise do these professionals buy stocks, bonds or gilts. So, for a small fee, you get the services of these professionals, services that would otherwise be impossible for you to avail of. UTI’s score: Poor. Due to its large holdings, the skills of fund managers have not been allowed to develop, as they are prisoners of inter-scheme transfers (a fund on which there is redemption pressure sells to one which new investors are buying). Besides, research took a backseat in the past few years, as investigations reveal.
Opinion in Outlook Money
Gautam Chikermane
DESPITE ALL claims and actions to the contrary, in its functioning, in its structure, in its very reason for existence, the Unit Trust of India (UTI) is, quite simply, a mutual fund–a medium not only for saving money but equally to create wealth and meet life’s major financial objectives. There are seven main characteristics that make a mutual fund. Had UTI adhered to them, the current crisis would have only been one of bad fund management or low returns–a problem not entirely restricted to UTI. These seven points are why mutual funds are the best investment vehicles, not only in India but across the world. In my opinion, in five of these, UTI scores ‘Poor’, in two it scores ‘Fair’. Overall score: Poor.
Professional management. When an asset management scheme (AMC) floats a scheme, it brings into the product a few of the top minds in the field of finance. These are experienced and skilled professionals whose job is to research companies, analyse industries, crunch numbers, evaluate the future, observe stock prices, interest rates, currency fluctuations and so on. They then match these analyses with the objective of the investors. Only after this rigorous exercise do these professionals buy stocks, bonds or gilts. So, for a small fee, you get the services of these professionals, services that would otherwise be impossible for you to avail of. UTI’s score: Poor. Due to its large holdings, the skills of fund managers have not been allowed to develop, as they are prisoners of inter-scheme transfers (a fund on which there is redemption pressure sells to one which new investors are buying). Besides, research took a backseat in the past few years, as investigations reveal.
Opinion in Outlook Money
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