Book Review: 24 Akbar Road by Rasheed Kidwai

This is more than the biography of a bungalow, which was the center place of activities of Congress party for many decades. It provides biography of all its occupants and of the political party too. It has stood a mute witness to “Rise-Fall-Rise-Fall” of the historical party.

This bungalow situated at 24, Akbar Road of New Delhi, was turned into Party Office in 1978 by Indira Gandhi during her low and tough years after the emergency. The building was in the state of shambles, reflecting the situation of the party too. But the years ahead proved lucky for the building and its occupants.

Then book turns into historic events in making of Indira Gandhi and some details about her father too. When she was expelled from party, she had said “Nobody can throw me out of Congress. It is not a legal question but a question of the very fibre of one’s heart and being.”  That is because her house was not limited to her family but to many of the party workers and freedom fighters. She had witnessed her father and grandfather going to jail several times during British rule. She had confronted British at a tender age objecting their house hold goods being taken away by them as her father had not paid the fines imposed by British court. Though not an adult during freedom struggle of India, her Monkey Party had played the role of passing on critical messages to the freedom fighters. Indira’s role as a Congress party worker was indisputable. She came back to power and the bungalow at 24, Akbar filled with people and became a place where major decisions of the party are taken.

Indira was groomed by none other than her father. He had written lengthy letters to her shaping her personality in his absence as well. But Indira had a mind of her own. Along with wit and courage, she had weaknesses too. Her politically active son Sanjay was getting into many day to day functioning of the Govt. and that of party. Those who did not align with him quickly lost their influence and place. But the accident did not let Sanjay live longer and led to reluctant Rajiv’s arrival into politics. Subsequent killing of Indira and Rajiv too brought many changes into the functioning of party. After three generations of Nehru-Gandhi family holding the top post of Prime Minister, it was the turn of PVN Rao for the high post. In party matters too, Sitaram Kesri rose to chief post. The mismanagement and the mistakes of the party led to its fall and BJP assumed power under leadership of Vajpayee. But the political tide does not let anyone remain in top forever.

Congress was reelected in 2004. But Sonia opted to be a king maker by putting the learned man Dr. Man Mohan Singh on the throne. Activities resumed again at the bungalow of 24, Akbar Road. During this time, the building became tech savvy too, enabling better communication and coordination between party offices all over India. The book ends with an optimistic note on Rahul Gandhi, hoping that the prince will be crowned.

Author Rasheed Kidwai had written this book in a lucid style, keeps the reader engaged in this political thriller. He presents many interesting facts from the history of the party but he got it all wrong with Rahul. 2014 elections proved to be a disaster for Congress and Rahul. (This book was published in 2013). Like in 1978, the party seems to be in shambles again. Recently the ruling Govt. had issued a notice to Congress to vacate 24, Akbar Road. Is this the end of the historical party or a new beginning? At least it seems to be the end of 24, Akbar road in the history of Congress.

Opinion: Russian junk bonds and the weakness in Yuan

All three rating agencies have cut the ratings of Russian bonds to junk status with a negative outlook. A Ruble does not even fetch 2 cents of American currency now. It appears Putin underestimated the impact of economic sanctions. His tankers and missiles were battle ready but his economists failed him. Well, it is not just Russian currency and economy under attack, there are so many who are licking their wounds too including a strong contender to USD, the Euro. With crude oil prices being halved, all oil producing nations will have to re balance their budgets else they run the risk of depleting their reserves. Currencies of emerging countries are struggling to come out of the well they have fallen into, including the Indian Rupee, though the damage is not severe.

Ruble vs. USD Source: Investing.com

We know all currency valuations are relative and fluctuations are against another currency. For every loser, there has to be a winner in a zero-sum game. And there is only one gainer, USD. Was this bound to happen, or was it a conspiracy or a mystery? It cannot be mystery for sure as it cannot be explained. If it was bound to happen, how long this will continue and who will be the next victim? That is a better question to ask. It seems Chinese currency is the one next in line of fire.

Why China? It is Crimea and Oil which did the damage to Russia. But China did not attack any of its neighbors (though it has desires) and it is not an oil exporter. Right, but we need to approach it differently. When dollar was strengthening, China had to earn additional dollars to keep up its currency with it but China’s trade figures with US does not show any change. So gains in dollar would not spillover to Yuan. Unlike in yesteryear's, China cannot print its currency to buy those dollars as it would cause inflation in a low growth year. For this reason, Yuan which was pegged to dollar could not maintain its exchange rate with dollar and it lost some of its value in the last two months. You may observe the losses are not significant. But the crack can propagate for multiple reasons. Dollar is set become even stronger when Fed raises interest rates in US. That will weaken Yuan in the same proportion. When yields on US treasuries rise (probably by end of this year), it may trigger outflow of capital from China which can do serious damage to its currency. As domestic growth is slowing down in China, new investments do not come in like before. And on those trillions dollar worth US treasuries China is holding, it will suffer capital loss as bond prices will drop when yields rise. It will be like an interest free loan from China to US. China may start liquidating those treasury bills to prevent any serious damage to its currency. But it has to do it slowly in order to prevent inflation. The damage to its currency may not be severe as Ruble. But any damage is still damage. Economic theory suggests there are no long term benefits in engineering exchange rates.

Chinese Yuan vs USD Source: Investing.com

As long as US maintain its trade figures with China, there are no serious threats to valuation of Yuan despite any set-backs. But US is building its factories too and filling them with robots to achieve cost benefits, so the trade figures may not remain the same. Until there is one currency for the whole world or equality in GDP among many countries, big brother will continue to rule and enjoy at someone’s expense.

Opinion: One business is getting back to profits and another waiting for next victim

Two businesses are in news. They have gone through the up-down cycles. They attracted investor interest in the beginning but turned out to be nightmares. They almost went out of business but there is revived interest in them. One is moving back towards profits after several years of losses (Suzlon) and another (Spice Jet) is waiting for its next victim.

Suzlon wind turbine maker had left a deep scar in many retail investors. Its debut and the run after IPO in the initial years made it an index stock but an acquisition mistake proved too expensive for it. Its stock performance made investors lose most of their capital, do not mention the gains. But it is getting back to business of making profits and turning out to be an investment grade stock again after a gap of many years for the following reasons.

• It could not hold to its acquisition of Germany's REpower (later renamed Senvion). When things looked bright for Suzlon, it had ambitions to become a top global player and REpower was expected to add to its prowess with its offshore wind turbines business expanding the portfolio of Suzlon. But the aftermath of global financial crisis in 2008, Suzlon could not arrange long term finance at lower costs, and the interest costs were more than operational profits Suzlon was making, so it could not service its debt and had to default on FCCB’s and to refinance with most banks losing its credibility as a profitable business. Last month, it exited from REpower in a distress sale. Along with it, the debt load on Suzlon too had come down. Had this decision been made a few years ago, it would have prevented its promoter Tulsi Tanti from the embarrassment of pledging all his holdings.
• Dilip Shanghvi, a prudent business man (who runs Sun Pharma) taking a stake in Suzlon and infusing much needed capital into the business is a big boost to Suzlon. It always had a good top-line but the borrowings made the business suffer. This money coming from a drug-maker as equity will free Suzlon from the fever it had suffered for long time.
• Improving business environment: With the new Govt. set to boost spending in renewable energy, Suzlon’ revenue is set go higher. And the recent move from RBI in reducing the policy interest rate has indicated that interest rates are set to come down from here. With its revenue going up and finance cost coming down, Suzlon seems all set to show profits in next financial year.

Spice Jet too went through a rough period and many were guessing it will go out of business like Kingfisher Airlines but it is finding new investors. Unlike Suzlon, there are no hopes of it getting back to profits because the structure of the business. It was not financing that is the issue here. Though there are exceptions, very few airline businesses generate profits. Competition is intense and margins are thin.  More the sops they offer to customers, higher are the losses. More flights they

operate, quicker is the cash burn rate. If you had bought those discount tickets and flew with Spice Jet, you too had helped Spice Jet in burning their money.

Income statement of Spice Jet. Source: Moneycontrol.com

Take a look at their income statement and their operational profit; it appears they do not make money no matter what. So the Marans had it enough, and got out of this expensive fancy business. But there are new suitors to give it a fresh lease of life. Will they be able to change the structure of the business? Competition will not let it do. And if they operate in the same fashion, fresh capital won’t last long. What will happen then? Another new investor may walk-in. If not, Spice Jet will have to learnt to live within its means and not worry about its market share. If it does not, it has to follow the ‘king of good times’ for whom good times seem to be over.

Opinion: Apple-onomics

Source: Apple company site

Last quarter (Q1’2015) results for Apple broke records. A profit of $18B made it Apple’s most profitable ever quarter and also the biggest quarter of any public company in history.

Source: Wikipedia

If we extrapolate quarterly revenue of $74,500 M into one full year and consider Apple as a country and compare it with GDP of countries, Apple would displace Singapore and take 37^th place in the list. Phew!!!

Source: Data from Apple company site

If you take a look at geographic distribution of its revenue, 59% ($44 B) of it comes from outside of US. All of that are exports for US. Apple's products were approx. 13% of all of US’s exports for that quarter. Since most of the manufacturing for Apple happens outside US, we can exclude direct material and labor costs from that $44 B, it would still amount to $17 B of net contributions to trade. And considering domestic impact, it adds $30 B of economic value to US economy for that quarter.

So it might be clear now. Apple is not just making money for its shareholders but boosting the economics its parent country too.

If Apple was an Indian company, India would be a trade surplus country (India's trade deficit is less than Apple's exports) with a strong current account. And Rupee would have been a currency to seek after!

You will say stop dreaming and I would agree. But those who are making noise with ‘Make in India’ need to take a look at what Apple is doing for US despite the absence of manufacturing facilities for it in US as it sources most of components from Taiwan and South Korea and gets the assembly & testing done in China. Apple has proved it. It is not manufacturing what matters. What makes a difference is innovation, IP rights, marketing and delighting the consumer.

Are we thinking about it? Do we need Foxconn or Apple in India?

Opinion: Ambani and Adani will run India (and make most of India’s fortune)

Two articles in today’s newspapers made me think two business houses (or rather families) will be the biggest beneficiaries of the upcoming policies and Govt. spending.

First news item is, Anil Ambani getting into defense manufacturing - http://economictimes.indiatimes.com/industry/indl-goods/svs/engineering/anil-ambanis-reliance-group-forays-into-defence-manufacturing-sector/articleshow/46206018.cms?imageid=45757525#slide9

Ambani’s always meant business – the senior Ambani built the empire from oil to textiles, and his sons took it further getting into Telecom, Retail, Energy, Infra, and you name it. They always knew next big what and made sure they are there. But see that they are quick to cut loss and exit when their new businesses do not make money (like Reliance Timeout). Now Anil is keen to enter into defense manufacturing. Do they have experience in that – you may ask but it does not matter is what you will realize quickly. The biggest challenge in India is to work with Govt. and its bureaucracy, they can beat competition there and the lack of experience is made up by hiring the experienced from industry. Anil hired a former managing director from Lockheed Martin to lead this business. You can see he will make this happen.

And another news item is, Adani’s plan to get into Airport sector via Ahmedabad - http://timesofindia.indiatimes.com/business/india-business/Adani-eyes-airport-foray-via-Ahmedabad/articleshow/46207279.cms

Gutam Adani already runs Infrastructure business. His company operates ports in Gujarat – so why not operate Airport too? Again the success here depends on ability to work with Govt., and securing long term finance at low costs as rest of the project related skills including technology can be hired or bought and some of the works can be outsourced through contract works. It is how he transformed his small scale businessman into billions worth enterprise.

With the ‘Make in India’ initiative, both Govt. spending and private investment are expected to go up significantly in the manufacturing and infrastructure sectors. And you know who is set to ride that wave. They already made news today and you will see their fortunes rise too in the coming years.