Monday, October 20, 2014

Opinion: Jindal Steel and DLF: Business laggards or political victims?

The recent developments in the business world have severely affected the fortunes of two companies who were regarded as the leaders in the business segments they operated in.

Supreme Court judgment to cancel the coal block allocations affected the whole power industry and Jindal Steel & Power has taken the biggest hit. Now it is charge sheeted again by CBI. Last week, SEBI took decision to keep promoters of DLF out of equity markets for a couple of years for giving false information while listing its stock. These incidents have put great pressure on their stock prices which have seen multiple year lows.

So was this in their destiny? The issues they are facing are nothing new but many years old. What about the timing? As the weight on the lid came down, Pandora’s Box got opened?
Stock performance charts for Jindal Steel and DLF in the past 4 months. Source: Google Finance

Just a year or two ago, Naveen Jindal was a celebrated businessman cum politician. TV shows discussed how he was able to balance the demanding roles of a politician as an elected MP and that of a head of a vast business enterprise. His dual role complemented each other as they concluded. But now, in the changed political scenario, it does not appear to remain so.

If you read the biography of KP Singh “Whatever the Odds”, you will know that it is more than the business cycles, managing the politicians were a challenge for the chairman of DLF. Once he was in the list of top 10 richest men of India. But his wealth deteriorated along with the market capital of DLF.

The political connections which helped few businesses grow in the past are now taking a toll on them. Losing political favor is no good for any businessman, in India and everywhere. A billionaire businessman of yester years is now in jail in Putin’s Russia. Indian businessmen (who are out of favor) may not be in the same risk but their fortunes and revival depends on their ability and willingness to cope with the changed political scenario.

For stock market investors, it is time to go beyond financial statements. Those with good political quotient seems to have better opportunities to make money.