Financial Wisdom – By Kalidas

Radical Solution for Credit Crisis from Kalidas

Where the Things Are Going Wrong? updated 7-Nov-08

with 5 comments

title-where-the-things-are-going-wrongThis is a special column describing events, policies, thinking and actions of powerful governments, individuals, key officials in various countries having nation wide or world wide implications. They tend to spoil the life of the people at large or financial markets. It is intended that the people do not remain passive but raise their voice to buttress the troubles in the bud itself. The People always have to WIN.

Latest Event Figure on Top

Responsible Person

Narendra Modi, Chief Minister of Gujarat

Ref No:

08-001

Country

India

Date:

2008/11/07

Affected Region

India, Indian and Foreign Investors, SENSEX, NIFTY, Indian Stock Market

Event:  Mr. Narendra Modi ordered that partly Gujarat state owned listed corporations be asked (forced) to pay voluntary charitable contribution @ 30% before Income Tax (Statutory)  for the development of the state and governments’ other welfare programs. The listed companies have been asked to pass Share Holder’s resolution authorizing the company to make such contributions. Mr. Modi never mentioned under what authority he was imposing his will on the partly owned state owned companies, against the interest of all minority shareholders. He also did not specify on what legal and constitutional basis he was imposing Income Tax payable to the state which is not permissible under the Constitution of India. Income Tax is not a state subject. It is a Central subject.

& Effects: An extremely dangerous and arrogant stand, and if allowed to continue, it may ring death bell on the already difficult Indian stock market. Many other states, there are 27 more, who might raise their head and impose state level Income Tax not permitted under the Constitution of India. Government of India also controls over 300 public listed corporations. If GOI also adopts similar style, the whole stock market might come crashing down to less than 1000. This madness must be stopped. Charging 30% state level tax under the disguise of voluntary contributions will reduce Earning Per Share (EPS) by 30% that will cause sharp fall in the value of shares held by ordinary investors. Already, damage has been evident. Some of the strongest companies like GSPL saw its share price whittled down by 35% in few days (not because of weaker stock market. It may be noted that –

  1. This is unconstitutional. Imposing tax on income is the prerogative of the Central Government. The state government shares this revenue with Central government as per pre-defined formula under the Constitution of India.
  2. The listed corporations are not the exclusive property of the Gujarat state. There are other investors from India all across the nation and also foreign investors. These are nationally listed companies – Gujarat State is only a shareholder. It should not be allowed to abuse its power of majority to the detriment of minority shareholders.
  3. It is violative of Companies Act, 1956. No company contributes to charity thousands of crores. These are commercial organizations for profit, and under this express charter, the investors have invested into such companies.
  4. It is also violation of listing rules of NSE and BSE.
  5. It may also encourage other listed companies controlled by private citizens to make charitable contributions towards their private charities meant to benefit their families or communities.
  6. All investors must write to the Finance Ministry, Prime Minister of India, President of India (who is the protectorate of Constitution of India) Reserve bank of India, National Stock Exchange, Bombay Stock Exchange and Supreme Court of India and High Court of Gujarat, lodging strongest protest.
  7. If Mr. Modi does not withdraw this controversial proposal, he should be sacked immediately, imposing emergency Rule on the State of Gujarat to protect the constitution and the interest of all investors.

Filed under: Where the things are going wrong?

Advertisements

Written by anilselarka

November 8, 2008 at 12:12 am

5 Responses

Subscribe to comments with RSS.

  1. We are ready to write to FM,PM and the President of India. Just show us how to go about it collectively.
    thanks.

    Rang-jama

    Rang-Jama

    November 8, 2008 at 2:18 am

  2. Dear sir,
    I apologize for being disagree About Stock Market Crashing down LESS THAN 1000.
    Here is my simple logic on the matter of Reduced EPS by 30% In Goverment holding of PSUs.I searched and found that there are 30 stocks in sensex from Which Government controlled stocks are only 4 (SBI, BHEL,NTPC, ONGC). The EPS of Other 26 stocks is RS. 1236.0 per share which Eps of Government Controlled stocks’ is 271.30. Total Eps is 1507.30 and PE at today’s level of 9964.00 is 6.61.
    Now if We reduce 30% EPS only 4 Government Controlled stock then Their EPS would be 189.91(271-81.39) and Total EPS of 30 stocks would be 1425.91 (1236+189.91). IF We command Current PE of 6.61 Then SENSEX LEVEL WOULD BE 9425.26 (1425.91*6.61).. Then Where does the matter come out sensex less then 1000???
    If This happens then there would be Loss of Market capital in sensex would be around 1.29 lac crores and overall loss in 300 companies … I dont know ??? so Sellers would not rush to buy private stocks which will boost Sensex higher ????
    Sir, I know you write only after very much of thinking. I Also know you have almost every time gone write and also know that there would be some hidden impact of this 30% Eps loss which i dont know but you know.
    Thanx Jayesh Ghatkopar Mumbai

    jayesh

    November 8, 2008 at 4:25 am

  3. Sir, (1) The Central Govt. first set a bad precedent (though may not be comparable to the present action of Gujarat Govt.) by directing oil companies to supply some of the petroleum products by Central Govt. controlled companies, and NOT fully compensating them even by way of bonds (2) If at all it is so unconstitutional, the Central Govt. controlled by UPA allies would have pounced upon Modi; rather the Central Govt. is yet to take action as no news report suggest any action in the light of your views. (3) To my mind, other State Govts. which have profitable PSUs and also listed, are watching the pros and cons of the move initiated by Gujarat Govt. and shall follow Gujarat way. For e.g. some of the listed TN Govt. controlled PSUs. (4) Talking about privately controlled listed companies, while some like TATAs may(!) have some well-defined policy on contributing to charities, many do not. Often, to my mind, contributions to charities even by privately controlled listed companies are to some known individuals/institutions AND for tax-benefit purposes. How many shareholders in such companies have raised this issue in AGMs and with what results? (5) A contrarian view could be that Modi is transparent on this score.

    sekar

    November 8, 2008 at 9:43 pm

  4. Sir, Referring to your point – No.(5) It may also encourage other listed companies controlled by private citizens to make charitable contributions towards their private charities meant to benefit their families or communities – I am not sure whether you are aware that some of the Members of Parliament, instead of using the Members of Parliament Local Development Fund (MPLAD) for the benefit of their constituencies, simply contributed a portion of the same towards some privately-held charity run by a very close relative of one of the present Election Commissioner ( a constituional functionary) when he was holding a senior-level position in Central Government.

    sekar

    November 8, 2008 at 10:45 pm

  5. Sir, One more news with regard to abiding by the rules set and corporate governance. This is with reference to the latest news that SEBI not taking action against certain Central PSU undertakings – like IOC, ONGC etc. – for not appointing independent directors. The companies have, once again (not the first or second time) pleaded that they have effectively taken up with the controlling Ministries to whom they are reporting for appointment of certain number independent directors instead of packing the PSUs with Govt. nominees as per SEBI/listing rules. Normally, non-compliance calls for delisting the concerned scrips from the exchanges. THen, how one can expect other companies to comply with rules/regulations with regard to trading in exchanges, and what ‘authority’ can we expect of SEBI? SEBI still remains a toothless tiger! Atleast given this context, Modi’s action is transaparent (though personally I would not like the PSUs to part with certain portion of PBT).

    sekar

    November 9, 2008 at 5:52 pm


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: