With exclusive interviews and incisive insights, B&E brings the electrifying annual listing of India’s top’ wealth creators during the financial year 2009-2010; companies that gave the largest rise in market capitalisation for their shareholders! By Deepak Ranjan Patra
Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances.
Sun Tzu c. 490 BC, Chinese military strategist
In this post-recession era, Sun Tzu’s strategy holds a lot more value for all the right logic. Gone are the days when some corporate house could make a grandiose announcement, hype over it through scrappily sassy PR and see investors falling hook, line and sinker for the same, raising their bids for the company’s stocks, which ultimately would end up increasing the company’s market cap to unparalleled highs. There is one critical reason this change occurred. While in the 1980s the biggest participants in the stock investor community were government financial institutions (led by star-eyed bureaucrats who couldn’t understand why pound sterlings were represented as GBP), from the mid 1990s into this decade, the massive majority of investors became what came to be known as FIIs – the brazenly cheeky, impudently crusty, Goldmansquely audacious Foreign Institutional Investors! FIIs came armed with supremely qualified analytical tools that looked through ostentatious corporate window dressing and ensured that market dynamics were driven less by company spiel. So did it mean that finally fundamentals started driving market capitalisations? Baloney! It only meant that FIIs used all technical skulduggery allowed in the trade (including high frequency trading) to book profits, while the common ‘long term’ investor would simply keep waiting – almost moronically – for dividend payouts.
But then, if stock markets are still moving nonsensically without correlation with fundamental strengths of the companies, what in heavens is the justification for this besotted and daffy global infatuation with market capitalisation, where CEOs are recruited and thrown out not on the basis of operational parameters (like sales, cash flows, even profits!) but on the basis of how much they’ve added to the stock market price? For this, you’ll have to go back 40 years, to the year 1970, when an eccentric Einsteinish professor of the University of Chicago – who used to write weekly Newsweek columns – raked up a controversy by saying that any organisation should have only one social objective – increasing financial returns for shareholders! His papers on monetary economics made so much sense that he was awarded the Nobel Prize in 1976. The corporate world finally came around to accept en masse the primary position of the shareholders’ wealth maximisation postulate – and has never changed since! The iconic Milton Friedman passed away on November 16, 2006, but left a legacy that will live its full cycle through the capitalist era.
Enough said, and enough proven. Now, the winners in absolute market capitalization increase on Indian bourses for the financial year 2009-2010...
B&E Hall of Fame: Synopsis
The table of those who performed at the bourses during the year is led by none other that Reliance Industries (RIL). Mukesh Ambani’s Mumbai Indians might have lost to India Cements (Deccan Chargers) in the IPL3 final, but his company paid back the compliment exponentially. RIL’s market cap jumped 44% or nearly Rs.1.09 trillion (total-float) to beat its India counterparts in terms of absolute rise in market cap. It was closely followed by Tata Consultancy Services (Rs.1.04 trillion) and the public sector mining giant, MMTC, which added Rs.87.7 billion to its value. Meanwhile, if one were to compare these figures with international representations, the scenario in the US market was worth watching as a number of financial giants, which were written off in 2008, rose from the dust. The list of top 10 US wealth creators included as many as four financial services companies including Citigroup, Wells Fargo and JP Morgan Chase, apart from Bank of America (BoA). BoA added $132 billion to its market valuation, while Apple gained $114 billion.
A Commentary on Domestic Fundamental Growth
By all means, there is no dearth of skills to create wealth in Mukesh Ambani’s camp. And it’s absolutely not surprising that Reliance Industries has once again emerged as B&E’s biggest wealth creator for the financial year 2009-10. Between April 1, 2009 and April 1, 2010, the company’s market cap witnessed a sustained growth from Rs.2.48 trillion to Rs.3.57 trillion. But does this give a true picture? One look at the company’s ‘fundamentals’ and dear Milton would be damned. While we are talking about the company’s growth in terms of market cap, RIL’s profit during last fiscal has grown by a paltry 3.83% to Rs.162.36 billion from Rs.156.37 billion for the previous year. And the year before that had been another dismal performance (2.46% bottom-line growth). The value of the company’s depreciation has more than doubled in the last fiscal to Rs.104 billion from Rs.52 billion a year before. An analyst from Motilal Oswal Securities tells B&E, “Soaring demand and increased activity level in the oil and gas domain have forced a faster depletion in RIL’s reserves; depreciation during the quarter exceeded our estimate, spiking 134.6% year-on-year on account of the additional depreciation of the SEZ refinery and KG-basin gas facility, resulting a drop in its net profit.”
And if you thought market hype was the reason stock prices were going up, one has to mention that despite credible news about new discoveries, the company has provided very little guidance about the exploration/development plans with regard to many of its key blocks like NEC-25. Add to all that the fact that the company’s Gross Refining Margin dropped from $9.9/bbl to $7.5/bbl [bbl: oil barrel] in the last quarter of FY’10, when the same for other Asian refiners it grew very handsomely – and it become quite clear that even the largest wealth creator has no respect for straightforward seat-of-the-pants profit versus m-cap correlations. And RIL’s stock is still marching ahead at the bourses garnering brilliantly high m-cap figures.
Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances.
Sun Tzu c. 490 BC, Chinese military strategist
In this post-recession era, Sun Tzu’s strategy holds a lot more value for all the right logic. Gone are the days when some corporate house could make a grandiose announcement, hype over it through scrappily sassy PR and see investors falling hook, line and sinker for the same, raising their bids for the company’s stocks, which ultimately would end up increasing the company’s market cap to unparalleled highs. There is one critical reason this change occurred. While in the 1980s the biggest participants in the stock investor community were government financial institutions (led by star-eyed bureaucrats who couldn’t understand why pound sterlings were represented as GBP), from the mid 1990s into this decade, the massive majority of investors became what came to be known as FIIs – the brazenly cheeky, impudently crusty, Goldmansquely audacious Foreign Institutional Investors! FIIs came armed with supremely qualified analytical tools that looked through ostentatious corporate window dressing and ensured that market dynamics were driven less by company spiel. So did it mean that finally fundamentals started driving market capitalisations? Baloney! It only meant that FIIs used all technical skulduggery allowed in the trade (including high frequency trading) to book profits, while the common ‘long term’ investor would simply keep waiting – almost moronically – for dividend payouts.
But then, if stock markets are still moving nonsensically without correlation with fundamental strengths of the companies, what in heavens is the justification for this besotted and daffy global infatuation with market capitalisation, where CEOs are recruited and thrown out not on the basis of operational parameters (like sales, cash flows, even profits!) but on the basis of how much they’ve added to the stock market price? For this, you’ll have to go back 40 years, to the year 1970, when an eccentric Einsteinish professor of the University of Chicago – who used to write weekly Newsweek columns – raked up a controversy by saying that any organisation should have only one social objective – increasing financial returns for shareholders! His papers on monetary economics made so much sense that he was awarded the Nobel Prize in 1976. The corporate world finally came around to accept en masse the primary position of the shareholders’ wealth maximisation postulate – and has never changed since! The iconic Milton Friedman passed away on November 16, 2006, but left a legacy that will live its full cycle through the capitalist era.
Enough said, and enough proven. Now, the winners in absolute market capitalization increase on Indian bourses for the financial year 2009-2010...
B&E Hall of Fame: Synopsis
The table of those who performed at the bourses during the year is led by none other that Reliance Industries (RIL). Mukesh Ambani’s Mumbai Indians might have lost to India Cements (Deccan Chargers) in the IPL3 final, but his company paid back the compliment exponentially. RIL’s market cap jumped 44% or nearly Rs.1.09 trillion (total-float) to beat its India counterparts in terms of absolute rise in market cap. It was closely followed by Tata Consultancy Services (Rs.1.04 trillion) and the public sector mining giant, MMTC, which added Rs.87.7 billion to its value. Meanwhile, if one were to compare these figures with international representations, the scenario in the US market was worth watching as a number of financial giants, which were written off in 2008, rose from the dust. The list of top 10 US wealth creators included as many as four financial services companies including Citigroup, Wells Fargo and JP Morgan Chase, apart from Bank of America (BoA). BoA added $132 billion to its market valuation, while Apple gained $114 billion.
A Commentary on Domestic Fundamental Growth
By all means, there is no dearth of skills to create wealth in Mukesh Ambani’s camp. And it’s absolutely not surprising that Reliance Industries has once again emerged as B&E’s biggest wealth creator for the financial year 2009-10. Between April 1, 2009 and April 1, 2010, the company’s market cap witnessed a sustained growth from Rs.2.48 trillion to Rs.3.57 trillion. But does this give a true picture? One look at the company’s ‘fundamentals’ and dear Milton would be damned. While we are talking about the company’s growth in terms of market cap, RIL’s profit during last fiscal has grown by a paltry 3.83% to Rs.162.36 billion from Rs.156.37 billion for the previous year. And the year before that had been another dismal performance (2.46% bottom-line growth). The value of the company’s depreciation has more than doubled in the last fiscal to Rs.104 billion from Rs.52 billion a year before. An analyst from Motilal Oswal Securities tells B&E, “Soaring demand and increased activity level in the oil and gas domain have forced a faster depletion in RIL’s reserves; depreciation during the quarter exceeded our estimate, spiking 134.6% year-on-year on account of the additional depreciation of the SEZ refinery and KG-basin gas facility, resulting a drop in its net profit.”
And if you thought market hype was the reason stock prices were going up, one has to mention that despite credible news about new discoveries, the company has provided very little guidance about the exploration/development plans with regard to many of its key blocks like NEC-25. Add to all that the fact that the company’s Gross Refining Margin dropped from $9.9/bbl to $7.5/bbl [bbl: oil barrel] in the last quarter of FY’10, when the same for other Asian refiners it grew very handsomely – and it become quite clear that even the largest wealth creator has no respect for straightforward seat-of-the-pants profit versus m-cap correlations. And RIL’s stock is still marching ahead at the bourses garnering brilliantly high m-cap figures.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
