Indian market today is a very difficult market to please. Is the end client really difficult to please, I am not sure but the distributor is very difficult to please. And the last mile connect is the real tough nut to crack. Whether it is your cable television provider deciding not to give you UTVi or ET Tv or whether it is your ‘agent’ deciding not to sell you the life insurance policy that you want it is all the same.

So are there some companies which are ethical and some which are not ethical?

Not sure. Recently I met a electrical contractor who rattled off all the big names in the country as his client. The list was really impressive and it was almost across the length and breadth of the country. It turned out that the owner was a big shot with fantastic political contacts and could get anything done in any state electricity board. Thus there was an element of bribe in the billing itself. So immaterial of whether you are a small company opening one factory or a big group with several locations this company could get something done for you.

Similarly there was a construction company, doing government construction, AND REFUSING to bribe. They got all their ‘EMD’ (Earnest Money Deposit) and such other deposits in full – they had a good legal team and accounting team which ensured this. Quite stunning that in the construction business (which you thought was dirty) such a company was in existence. All the merchant bankers had queued up, but they have chosen to remain private.

In the financial service industry though, it is difficult to find ‘clean’ companies. What they cannot do because of ‘regulations’ they do it through agencies whom they appoint. This is a recent phenomena – in the last 3-4 years life insurance companies have used Multi level Marketing (MLM) companies to get life insurance premiums, agents have openly rebated, – there is no company which can say it is clean. Some companies do it more openly than the others. Some of them wear a fig leaf and say ‘Our agents may be doing it, but we do not’. However the ‘agents’ who are ‘honoured’ are the same guys/gals who are doing all this.

Is this wrong or right? Well there is no clear answer. The equity markets have to decide. Normally markets know that sales got by short cut methods are not sustainable, so the price earning ratio has to fall. This should reduce the market capitalisation. Does it always happen? Well am not sure, but if you go to moneycontrol and see the mutual fund houses still holding Reliance Communications, it is scary.

Will the same treatment be given to companies in the retail business (no cash flow, no profits only hype), financial services (only 3 out of 42 mutual funds earn money, only 1 out of 17 life insurance companies make money, most brokerage houses make money on money lending, not brokerage income) – where only banks are extremely profitable (only one business – borrowing and lending, and a big income from the distribution business) time alone will tell…

Not so optimistic about flashy market cap. By now if you have been reading my blogs you know I have been trained to be conservative, BUT, BUT, BUT….let us have fun till it lasts.