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commodity prices, money from pension, insurance and mutual funds and largeinstitutions holding massive financial assets.
The following issues have heightened the complexities for serious investors:
Changing Business models due to tectonic shifts in technology and businessdynamics (Tata Tea was a commodity company – now it is an FMCG companywith strong brands acquiring brands like, Tetley)
Foreign exchange losses (even small companies, like, Himatsingka Seidesuffered heavy forex losses – I was one of the unfortunate sufferers in thestock) due to complex derivatives sold by greedy bankers to speculativemanagers
Goodwill impairment due to erosion in investments globally (particularly DRL,Suzlon, etc)
Losses from selling FCCBs with exorbitant conversion prices (the likes ofAurobindo Pharma, Subex, Bilcare, etc)
Global financial meltdown (remember the fate of K.Raghavendra Rao, theoriginal promoter of Orchid Chemicals & Pharma, whose stock was severelyhammered after the collapse of Bear Stearns in early 2008?)
Government playing into the hands of powerful corporate lobbies – Eg,Dilution of accounting standards (The effective date of AS-11 pertaining toforex losses/gains was postponed at the last second from March 31, 2009 toMarch 31, 2011)
Failure of the Government to contain the amount of interest payments andfailure to bring any expenditure reforms: The talk of Government containingfiscal deficit to 5.5 per cent in 2010-11 is mere hogwash. Please considerthis fact: The oil subsidy burden for 2009-10 is around Rs 40,000 crore.And our erudite FM has not allocated a single paise for oil subsidy for 2010-11 in the Budget 2010-11. Moreover, the entire investor community,especially FIIs, believes that these fiscal deficit targets are achievable.Does it mean that GOI will increase oil prices if crude oil goes beyond USD90/barrel? There is little chance of such pass through of oil prices. EvenS&P thinks these fiscal/revenue deficit targets are achievable and theyhave upgraded India’s rating recently. Everybody knows GOI has made a bigmess as far as public finances are concerned. But, the stock market islooking askance at the figures and giving the benefit of doubt to the FM.Why?
Government’s failure to open up several sectors to competition – like, retail,defence and nuclear energy
Heavy increase in Government borrowing in the last three years despiterecord tax collections, especially, direct taxes