POLITICAL STOCKS - POLITICALLY CORRECT BUT ECONOMICALLY WRONG?

By Ruma Dubey

Politics is a curse, for India and for India Inc. There is so much red tapism and so much bureaucracy, so much of the money and kowtowing which needs to be done to just move the files around in the same office that it seems virtually impossible to run a company in India without the right ‘political’ connections.

What do we mean by political connections? Just as a common man might feel that he can get his work done expeditiously if he has ‘contacts’ in the Municipality or any Govt office, company owners, obviously with higher  stakes,  need such ‘contacts’ at the higher levels. It is a known truth, a necessity if you want to run a business in India.

But today, with more and more worms coming out of the putrefied can, these connections are becoming a huge negative; something which is a big no-no for those looking for the right stocks. If ‘political stocks’ were a big attraction a few years ago, they are today the biggest possible negative. Like there were days when people bought shares like Energy Development Company simply because it is recognized as a “Amar Singh” company. Even today he is the Non-Executive Director of the company but it no longer has the fancy because of him. Infact whenever there is some negative news about Amar Singh, the stock continues to collapse though the fundamentals remain intact. Ditto for  Heritage Foods. This is a company promoted by Chandrababu Naidu. Though he is no longer on the Chairman, his run, Lokesh Nara runs the company. Dayanidhi Maran running Sun TV and Spicejet are also a very strong ‘political stocks’.  Then there is Rajiv Shukla who own BAG Films and Naveen Jindal who owns Jindal Power & Steel. There is also Saleem Shervani whose listed company, Shervani Industrial Syndicate hit the upper circuit today.  The very well known Praful Patel was a well known businessman first and only now, post his aviation portfolio that he became more famous as a politician. His listed company – Ceejay Finance.

The reason why there is an attraction for such ‘political stocks ‘ is because of the perception that such companies, which have prominent politicians at the helm, will get approvals and sanctions much faster. So to beat bureaucracy, it is best to have a politician at the helm. Like Sukhbir Singh Badal, the current deputy Chief Minister of Punjab, though he does not have any listed company, but apart from family owning a vast horticultural business in Punjab and a passenger bus transport business; his family has a 85% holding in the Trident Hilton in Gurgaon. And obviously, it is just a coincidence that Punjab National Bank, the Punjab and Sind Bank and the Oriental Bank of Commerce were bankers to the hotel project.

And then there are those companies which  do not have politicians leading but have very strong political connections.  Like the “YSR” or “Jagan Reddy” brand of companies which are today facing the brunt of getting too close. Ramky Infra, Aurobindo Pharma, India Cement and Nava Bharat Ventures. These companies are under CBI scanner for issues relating to transactions of corporates with which Mr Reddy and his firms, and the investments they had made to secure land to set up special economic zones, etc. And how can forget the largesses enjoyed by the Satyam group from political parties.

Yes, if one has to survive in the corporate world, it is probably essential to kowtow with politicians. But how much and how far is the big question. Every industrialist has to knock on the doors of the politician but whether that knocking leads to money exchange and underhand dealings is what worries the most. Right from Ratan Tata to Mukesh Ambani, all need to kowtow.

So when we say avoid ‘political stocks’ it would tantamount to avoid investing at all! Thus ‘political stocks’ are like the ‘Jagan’ stocks which raise huge questions on corporate governance and companies owned by politicians? Well, if you cast your vote for that politician maybe you can buy his stock also – putting conviction and money, both at stake. To get close to a politician or not, is a tough decision -when in ruling power, its great times but when the chair is lost, its downhill. 

Remember, power resides where you believe power resides. Power of the idea, power of the fundamentals or power of the person running the company? That’s the choice you need to make.