Bhagavad Gita: Managerial Lessons

Introduction

The Bhagavad Gita—also known as the ‘song of the lord’-- is a 700-verse Hindu scripture that is part of the ancient Indian epic Mahabharata. The Bhagavad Gita is a dialogue between the warrior Arjuna and his charioteer Lord Krishna, who is admired as an incarnation of the Hindu god Vishnu. The conversation takes place on the battlefield of Kurukshetra—about 5200 years ago-- where Arjuna is highly reluctant to fight his own relatives and teachers in the upcoming battle. Krishna uses the opportunity to teach Arjuna about dharma (righteousness), karma (action), yoga, and other spiritual concepts. The teachings of the Bhagavad Gita have had a profound influence on Hindu philosophy, spirituality, and culture, and are also respected for their universal and timeless wisdom.  According to Bhagavad Gita, every human being is a talent magnet with infinite potential to overcome obstacles and achieve extraordinary results. One needs to realize that potential by focusing attention on an ethical path--- that is meant to deliver value to Society --- and discharge duties with a complete sense of detachment—without seeking fruits of action instantaneously.  The ultimate purpose of life is to attain spiritual liberation or moksha and this can be achieved by performing one’s duties without attachment to results (karma yoga), by understanding the nature of reality and the self (jnana yoga), and by developing a deep love and devotion for the divine and surrendering oneself to its will (bhakti yoga)

Managerial Lessons

Managers can learn a lot from Gita and some of the important ones that can improve managerial efficiency and effectiveness may be recounted thus: 

No doer of good ever ends in misery

The despondency of Arjuna in the first chapter of the Gita is typically human. Sri Krishna, by the sheer power of his inspiring words, changes Arjuna's mind from a state of inertia to one of righteous action, from the state of what the French philosophers call "anomie" or even alienation, to a state of self-confidence in the ultimate victory of "dharma" (ethical action.) When Arjuna got over his despondency and stood ready to fight, Sri Krishna reminded him of the purpose of his new-found spirit of intense action - not for his own benefit, not for satisfying his own greed and desire, but for the good of many, with faith in the ultimate victory of ethics over unethical actions and of truth over untruth. Sri Krishna's advice about temporary failures is, "No doer of good ever ends in misery." Every action should produce results. Good action produces good results and evil begets nothing but evil. Therefore, always act well and be rewarded.

Focus on your duty

One of the key lessons from the Gita is to focus on one's duty or dharma and not seek personal gratification or rewards for one's actions. Everyone has a unique dharma or duty that they must fulfill in order to live a rewarding life. It is important to stick to one’s dharma and then dedicate oneself to fulfilling it with sincerity, commitment, and devotion. While doing so, one should not be attached to the fruits of one's actions or seek personal gratification from them. Instead, one should perform their duty selflessly, without any expectation of reward or recognition. This is because seeking gratification or rewards can lead to attachment, which can in turn lead to disappointment, frustration, and suffering when those expectations are not met. By focusing solely on one's duty and letting go of the desire for personal gain, one can achieve a state of inner peace and contentment.

Think long-term and do your duty

In the Gita, Lord Krishna advises Arjuna, a warrior facing a difficult decision, to focus on his duty and to act without attachment to the outcome. Similarly, managers should focus on their duties and responsibilities, and not get overly attached to short-term results or personal gain. Instead, they should consider the long-term implications of their decisions & actions, and make choices that benefit the organization. This requires managers to develop a sense of purpose and a clear understanding of their roles and responsibilities. They must also have the courage to make tough decisions, even if they are unpopular or challenging. By thinking long-term and doing their duty, managers can create a positive impact on their organizations and communities, and ultimately achieve greater success and fulfillment in their careers.

Be calm & remain composed

The Gita teaches that true wisdom lies in maintaining equanimity in all situations. This means remaining calm, composed, and balanced, even when facing challenges and obstacles. For managers, this can mean staying level-headed and objective when dealing with difficult situations, rather than reacting impulsively. A manager should keep his eyes focused on the goal, ignore the obstacles on the way, deal with challenges head-on in a serene way, and reach the destination. One should focus on the processes and doing one’s best rather than worrying about the challenges on the way and the possible outcomes. For managers, this can mean taking proactive steps to address challenges, rather than being paralyzed by fear of failure. If a particular chosen path is not the right way, managers should be prepared to change hats and switch gears midway. They must be open to change, willing to adapt to new situations, overcome obstacles and achieve success. There is no use getting distracted by petty office politics and ignoring the bigger picture. Such attempts will dissipate managerial energies and drag them into controversies-spoiling the show in the end. The Gita, thus, stresses the importance of maintaining equanimity in the face of success and failure. By treating both outcomes as temporary and staying focused on your work, you can avoid becoming overly attached to the results.

Gita offers a framework for self-motivation

Gita offers a framework for stimulating high levels of motivation. Otherwise, how can one explain the sudden transformation that Arjuna has gone through from a state of fear, mental agony, and hair-raising experience to one of waging a war against a battery of the most credible and competent leaders in the society and eventually winning the war? Overall, the teachings of the Gita can provide a framework for individuals to cultivate self-motivation and achieve their goals. By understanding the nature of the self, finding purpose and meaning, taking action without attachment, cultivating discipline and focus, and overcoming fear and doubt, individuals can develop a strong sense of inner motivation and drive.

Do not be attached to success or failure

The Gita teaches that attachment to success or failure is not good for managers. When managers become overly attached to the outcome of their work, they may become stressed, anxious, and unhappy. This can also negatively impact the work environment and the productivity of their team Instead, they should focus on the process, cultivate detachment, and lead with a positive attitude. By doing so, they can create a positive work environment and help their team members to achieve their best. The results of every action should not upset your mental balance nor dedication to duty. Success and failure are a part of our blissful journey in this world.

Have the right attitude to work: Nishkama Karma

Some people might argue that not seeking the business result of work and actions, makes one unaccountable. In fact, the Bhagavad Gita is full of advice on the theory of cause and effect, making the doer responsible for the consequences of his deeds. While advising detachment from the avarice of selfish gains in discharging one's accepted duty, the Gita does not absolve anybody of the consequences arising from the discharge of his or her responsibilities. Doing one's duty without attachment does not mean the abandonment or renunciation of duty in the Bhagavad Gita. Instead, it means performing one's duty with a selfless attitude, without being attached to the fruits of one's actions. According to the Gita, individuals are responsible for their actions, and they must face the consequences of those actions, whether they are good or bad. Thus, the best means of effective performance management is the work itself. Attaining this state of mind (called "nickname karma") is the right attitude to work because it prevents the ego, the mind, from dissipation of attention through speculation on future gains or losses

Possess a self-less mindset

According to the Gita, managers should define work as a means of fulfilling one's duties and responsibilities, rather than solely for personal gain or success. They should lead their teams by setting an example of selfless action and dedication to the task at hand. They should encourage team members to approach their work with a selfless mindset, recognizing that their work is a service to others and to the Divine. This can help foster a sense of purpose and meaning in their work. Managers should communicate their expectations clearly, equip the team members with the tools and resources needed to succeed. Members should be willing to always help each other and carry out their duties with dedication and mindfulness. 

Bhagavad Gita and the definition of work

ü The doer has the right to work

ü The doer has no control over the outcomes/ fruits of action

ü The doer has no control over the root causes of the fruits of action

ü There is no choice but to revel in inaction   Fear of failure and the focus on result orientation would drive people to sacrifice ethical means. ‘ I must enjoy the fruits of my action’ would compel people to focus on results ignoring the means. 

Control your emotions

To lead a fulfilling life and to attain spiritual enlightenment, managers need to possess a positive mindset and learn to always control their emotions.  The Bhagavad Gita emphasizes the importance of not being a slave to emotions. The sacred text teaches that emotions are a natural part of human experience, but they can also be a source of suffering and bondage if one becomes too attached to them. Therefore, the Gita encourages individuals to cultivate self-awareness and self-control in order to avoid becoming enslaved by their emotions. The Gita also teaches the importance of cultivating the quality of "sattva," which is the state of purity, harmony, and balance. This can be achieved through various spiritual practices, such as meditation, self-reflection, and service to others. The Gita emphasizes the importance of self-awareness as a means of developing self-control. By observing their own thoughts and emotions, managers can become more conscious of when they are becoming reactive or emotional, and take steps to regulate their responses. The Gita encourages individuals to cultivate a state of equanimity, or even-mindedness, in the face of challenges and difficulties. Managers can practice this by maintaining a calm and composed demeanor, even in high-pressure situations. The Gita teaches the importance of seeking guidance from wise mentors who can offer spiritual guidance and support. Managers can benefit from seeking out mentors or coaches who can help them develop their emotional intelligence and spiritual awareness

Show the right path for others

According to the Bhagavad Gita, those who are in positions of authority should set a good example for others to follow.   As a manager, you can lead your followers on the right path by setting a positive example through your own actions. If you demonstrate integrity, honesty, and respect for others, your followers are more likely to follow suit. The Gita teaches the importance of self-awareness and understanding one's own strengths and weaknesses. As a manager, you can help your followers develop their self-awareness by providing constructive feedback, encouraging self-reflection, and setting realistic goals. The Gita emphasizes the importance of performing one's duty without attachment to the outcome. A manager should instill this sense of duty in their followers, encouraging them to focus on the task at hand rather than the rewards or recognition they may receive. Further, the Gita emphasizes the interconnectedness of all beings and the importance of working together towards a common goal. A manager should foster a sense of unity and teamwork among their followers, encouraging them to collaborate and support one another. he Gita emphasizes the importance of continuous learning and growth, both personally and professionally. Managers should encourage their followers to seek out opportunities for learning and development, and provide them with the resources and support they need from time to time.

Deliver what your promise and promise what you deliver?

"Whatever the excellent and best ones do, the commoners follow," says Sri Krishna in the Gita. The visionary leader must be a missionary, extremely practical, intensively dynamic, and capable of translating dreams into reality. This dynamism and strength of a true leader flow from an inspired and spontaneous motivation to help others. "I am the strength of those who are devoid of personal desire and attachment. O Arjuna, I am the legitimate desire in those, who are not opposed to righteousness," says Sri Krishna in the 10th Chapter of the Gita.

Giving back to the Society

According to the Gita giving back to society is an essential aspect of a fulfilling life. By performing selfless acts of service and using our talents and resources to benefit others, we can create a more compassionate and just society while also experiencing inner growth and fulfillment. While the Gita does not explicitly prescribe acts of charity, sacrifice, and penance for managers, it does offer principles that can be applied to their roles and actions.

ü Charity, or "dana," is the act of giving to those in need. By giving freely and selflessly, one can attain spiritual merit and gain the blessings of the divine.

ü Sacrifice, or "yajna," is the act of offering something to a deity as an act of devotion. tAll actions should be performed as acts of sacrifice, with the ultimate goal of attaining union with the divine. This can be achieved by offering one's thoughts, words, and deeds to the divine and performing rituals and ceremonies with devotion.

ü Penance, or "tapas," is the act of undergoing hardship or self-discipline in order to purify the mind and body. The Bhagavad Gita teaches that penance can help one overcome desires and attachments that prevent spiritual growth. It is seen as a means of attaining self-control, discipline, and inner strength.

Acts of charity, sacrifice, and penance can also be incorporated into a manager's approach to leadership. For example, a manager could donate a portion of their salary to a charitable cause or volunteer their time to help others in need. They could also make sacrifices in their personal or professional life in order to benefit their team or organization, such as working longer hours to meet a deadline or taking on additional responsibilities to support their colleagues. Managers can engage in acts of penance by reflecting on their actions and behaviors, identifying areas where they can improve, and taking steps to address any shortcomings. This could include seeking feedback from their team members, attending professional development programs, or engaging in regular self-reflection and meditation practices.

Disinterested work and detached involvement in work

A concept which is described as "disinterested work" in the Gita where Sri Krishna says, "He who shares the wealth generated only after serving the people, through work done as a sacrifice for them, is freed from all sins. On the contrary, those who earn wealth only for themselves, eat sins that lead to frustration and failure. “Detached involvement in work is the key to mental equanimity or the state of "nirdwanda." This attitude leads to a stage where the worker begins to feel the presence of the Supreme Intelligence guiding the embodied individual intelligence. Such de-personified intelligence is best suited for those who sincerely believe in the supremacy of organizational goals as compared to narrow personal success and achievement

Harness the power of the human mind

The Gita emphasizes the importance of controlling the mind to achieve success. The mind is the most powerful tool we have, but it can also be our greatest obstacle if we allow it to be ruled by negative thoughts and emotions. By learning to control the mind and direct it towards positive goals, managers can overcome obstacles and achieve success. According to Gita, success comes not just from external factors like hard work and skill, but also from internal factors like mindset and attitude. By harnessing the power of the mind through control, detachment, selflessness, and adaptability, managers can achieve their goals and create a more fulfilling and successful career.

. Intensions Are Your Expressions

Gita says “your intentions should be clear, practical, and achievable and should differentiate you from others. Power of intention is the success mantra for attaining any desired task.  Look for the bigger and harmonious picture, put your egos aside. Spirituality leads to social harmony and realizes the ultimate destiny of human beings as a result of self-assessment and self-determination. One should practice steadiness of mind through YOGA. With the steadiness of mind one can calm the emotions and increase one’s Viveka or buddhi with vichikshana  if you surrender before the Lord, you can leave your EGO at the gate and begin to see the big picture, and perform your duties with complete detachment. When Arjun reached the battlefield he lost his courage to fight when he saw his young and old relatives as his opponents and felt that he will have to kill them. He resisted fighting and dropped his arms. That time Lord Krishna directed him and said that he should focus on his goal.

Achieving success

The Gita emphasizes the importance of focusing on your duty, or dharma. Managers should prioritize their responsibilities and focus their efforts on fulfilling their duties to the best of their ability.  The Gita teaches that managers should identify what is truly important in their work and prioritize those tasks above others. By focusing on what is really important, managers can ensure that they are making the most effective use of their time and resources. Managers need to set realistic goals that align with their competencies and resources. By setting achievable goals, managers can avoid frustration and maintain motivation as they work towards their objectives. They should also learn to live with the present moment and not worry about the past or future. By being fully present and focused on the task at hand, managers can improve their efficiency and productivity. While trying to meet goals, managers need not turn themselves into racehorses. While it is important to work towards specific goals, managers should also recognize that the outcome is not entirely within their control. By embracing detachment, managers can reduce stress and maintain a clear and focused mind. They should also cultivate self-awareness and strive to understand their strengths, weaknesses, and tendencies. By doing so, they can work to improve their performance and make better decisions. The Gita emphasizes the importance of cultivating discipline in all aspects of life, including work. By cultivating discipline, managers can improve their efficiency and effectiveness. Managers should also strive to build positive relationships with their colleagues and team members. By doing so, they can create a supportive and collaborative work environment that fosters creativity, productivity, and success. At a personal level, managers should seek opportunities for lifelong learning and continuous personal growth. By continuously expanding their knowledge and skills, managers can become more effective leaders and achieve greater success. Overall, the Gita teaches that achieving success requires a combination of focused action, self-awareness, discipline, positive relationships, and a commitment to lifelong learning. By applying these teachings, managers can improve their performance, build successful teams, and achieve their goals in the workplace.

The curious case of a falling knife

 Digging the grave

Accidents do occur routinely. Stock markets are no exception. Here accidents happen daily. By nature, stocks are volatile. They swing from one end to the other every second. People profit from those pendulum swings. To make money, it is natural for some evil minds to inject poison into the system. They float wild rumors. They accuse the promoters. They create smoke around a stock. Often such claims are buttressed by sponsored research reports. To bring in credibility, they seek help from foreign brokerages. Carefully designed media leaks happen, citing some kind of siphoning of funds in a company. Independent directors, auditors, and other related parties are influenced to put in papers. You would see a flood of reports citing fraudulent practices in a targeted company. Reputed analysts are hired to plant doubts in the minds of the gullible public through popular media. Rating agencies begin to downgrade the stock almost simultaneously. In short, every attempt is made to create panic and kill the stock.

Smokescreen

Fund managers begin to flee at the first sign of trouble. Looking at the noise levels, they try to wash off their hands by putting the stock in flames. Huge bulk sell orders appear on the screen—mostly carried out by hedge funds. Shorts get created in numbers that would numb the senses of any sensible investor. Analysts rush to prepare negative reports and begin to release them daily—highlighting the alleged fraudulent practices inside the company. It would look like the best on-the-spot report—a kind of financial health report-- of what’s happening at the company headquarters. Interviews with disgruntled employees would see the light of day suddenly. By any chance, if the company fails to make interest payments on time, that would grab the attention of the whole world. The opposition would begin to blame the Government in power and demand stern action Professors (who never made a penny in the stock markets by the way) financial journalists and self-declared experts would pronounce judgment on the stock and reduce its price by a minimum of 50 percent. (Foreign professors are the preferred lot here because we tend to believe the foreign-origin product has good quality—for reasons not known to me)

The falling knife

Now is the time for the bulldozer to decimate the stock. Everyone is rushing to the exit door. No one wants to buy. The heavy downpour of sell orders sinks the stock to its lowest levels. Fresh 52-week lows happen almost every day. The stock volumes would touch sky-high levels. The weak hands would run for cover. The stronger ones would wait for some positive news to come. In the interim, technical analysts would cry from the rooftop (after creating huge short positions in the stock) advising investors to stay away from the stock. ‘It’s a falling knife, so do not ever dare to touch it’ is the standard phrase that gains circulation. They see to it that there is no demand created for the stock by badmouthing the stock in every news channel throughout the day (of course to safeguard their short positions that would yield juicy profits only when the demand disappears completely). True to their predictions, the stock would sink further and further. The promoter in the interim is dragged to the street and is made to answer embarrassing, prohibitive, nauseating questions of all kinds. Fear, anxiety, and financial loss would compel the Promoter to brief the Media with all kinds of presentations made in a hurry. The scene gets murkier and murkier as Analysts dig deep into the presented data and uncover earth-shaking revelations of all kinds. The stock would now become a bottomless pit, having lost its sheen and value beyond recognition. The once-upon-a-time stock market darling would now turn into an ugly duckling that the Promoter himself would be scared to touch.

Stock on the stretcher

One fine morning the RBL stock started falling in a big way. The stock fell to its lowest level of Rs 85. Everyone said it is another Yes Bank. The reasons cited looked quite convincing (at that time) and the Market believed it. Mr.Ahuja the erstwhile MD was asked to go on long leave suddenly by the Reserve Bank. A similar move was made in the case of Yes Bank too. There was a sudden flurry of activity questioning the credentials of the bank. Analysts started questioning the asset quality, the inadequate provisions being made, and the poor net interest margin growth. The Market began to take an X-ray of the reduced holdings (though a minuscule change) of both the DIIs and FIIs in the most recent quarter. Suddenly the armchair professors found loopholes in the return ratios of the Bank. The stock started touching new lows with each passing day. Mr. Ahuja tried to salvage the situation by giving a series of interviews with the news channels. The experts now took the root of psychology to pronounce the sudden and premature death of the stock—saying that the body language of Mr. Ahuja was nervous and shaky, implying that he was trying to hide more than what the market wanted to know.

The new CEO picked up by the RBI (by a strange coincidence he was the administrator for Yes Bank previously—and hence the Market issued the judgment order even before he started his innings) who took over the reins from the Promoter had the PSU background—thereby meaning that the knowledge and experience of the incumbent not at all suitable for running a private sector bank. The Market was reading all these signals in a negative way compelling the stock to sink to its lowest level in over a decade—falling from Rs 165 (52-week high was 265) to Rs 85 in a short span of time (30 days).

Catch the falling knife?

You need muscles of iron and nerves of steel to catch a falling knife during all this controversy. The weak hands exited quickly. Technical experts enjoyed the enormous juice from the shorts daily. They tried every trick in the book to spell doom for the stock. Asset quality is poor; promoter is fraudulent books are cooked up; SEBI has gone into a deep slumber, RBI is looking the other way etc. Fund managers waited for the right moment to make their grand entry. FIIs also waited in the wings to pounce on the stock after it sank without a trace. Within a month the dust settled down. Reports came out saying that the books were not cooked. The return ratios are comparable to any other mid-sized bank. The new CEO is very capable and will be able to turn it around. Within 45 days, the stock regained its lost glory.

Key Takeaways

If you are patient enough to keep away from the noise levels created by the Market during a 3-month period where all the drama happened, you would have not lost anything. In fact, you would have made a decent return on your original investment. It is true that the journey from 169 to 85 and back to 170 levels is quite scary for faint-hearted souls. But a seasoned investor should learn how to cope with the excesses created by market participants for personal gains. You need to keep your ears and eyes wide open in order to read between the lines carefully and make prudent moves. A Falling knife would yield fantastic returns, if you are able to pick it from reasonably low levels in small quantities (as a thumb rule never buy a falling knife till it loses a minimum of 50 percent) and keep on increasing the load with every subsequent fall—and hold it till the time the rebound happens. RBL is not an exception; there are many other strong cases to cite in favor of falling knives. For example, software stocks have been beaten out of shape till recently. Everyone turned negative and most of the stocks have hit bottom levels for nearly 6 to 9 months. Persistent Systems touched 3200 and bounced back to the 5000 level; LTI Mindtree went below 4000 and bounced back to the 4900 level and the list is endless. Whenever the noise levels around a stock or a sector reach a high decibel level, remember, it is time for you to take notice and begin to load your portfolio (in small lots in a staggered manner) for a possible rebound sooner than expected.

Vedanta group in Trouble?

 The metal king of India

The stock has given stellar returns for over a decade. The Promoter has rewarded the shareholders consistently. Record dividends have been paid year after year. In fact, the dividend payout ratio is the best in the industry. The group never faced a resource crunch in its entire life. Thanks to the liberal interest rate scenario till recently, one phone call would bring global investors to its door. A series of acquisitions had put the  Vedanta group on the global map. The man heading the show—Mr. Anil Agarwal-- is named: ‘the metal Kind of India’. 

The man in a hurry

Undoubtedly, the Vedanta group was always investor-friendly. It was able to get the Authorities, the regulators, the Bankers & the Fund Managers on its side effortlessly whenever it made a big move. Many a time, the local and central governments had gone out of their way to clear the hurdles faced by the group. Easy funding, friendly governments, and flexible rules and regulations have compelled the Company to acquire all kinds of mineral resources left and right. People hailed the ‘golden touch’ of the Promoter and glorifying research reports greeted the investors almost every quarter. In the interim, the global metal cycle also turned positive, yielding astronomical returns.  Not surprisingly, the stock enjoyed a dream run for many, many years

The roadblocks

The Adani group fiasco suddenly shifted the attention of investors towards Companies that fuelled the growth engine through debt (the group borrowed $10 billion to fund the acquisitions) On close examination, the Vedanta group became the first victim of this newfound enthusiasm of Bears who made a killing by shorting Adani stocks during February 2023. As a result, the mining giant has grabbed the news headlines for all the wrong reasons. Everyone is putting a question mark over the Group’s ability to clear the huge pile of debt, including $ 500 million to be paid on 31st December 2023 and a $ 1 billion bond payment maturing in January 2024. Once the bear hammering began, investors have conveniently forgotten the $ 2 billion debt cleared by the Group in a span of 11 months. Still the outstanding debt to the tune of $7.7 billion, they say is humongous, and in a rising interest rate scenario, the Group will not be able to raise resources to the tune of $2 billion due to be cleared before the end of 2023—to be precise, $500 million between July and September and the balance before the end of the year. The Bears have already planted doubts in the minds of worried investors successfully – questioning the ability of the company to clear $3.9 billion debt during 2024-25 and $4.7 billion debt in 2025-26.  With a mere $500 million in its kitty, the parent company Vedanta resources will not be able to meet its obligations, unless there is a big fundraising exercise. Like the Adani group, the Vedanta group also will not be able to raise funds and once the doubts began to crop up, the stocks witnessed a free fall. 

The reversal of fortunes

In a smart move, Mr. Anil Agarwal who owns 64.92 percent of Hindustan Zinc Ltd (HZL) (29.54 held by the Government of India) tried to offload the mining resources of Vedanta Ltd in South Africa and Namibia for $3 billion The Centre’s opposition to the Company’s proposal to sell its zinc assets to HZL came like a bolt from the blue. The regulator, SEBI, has been approached to stop the deal from happening soon. The concerns aired by the Centre, though not convincing at this stage, had put a spanner on the plans of Vedanta resources to come out of the crisis quickly. After the Centre’s announcement, HZL stock has been mercilessly hammered down by the Bears.  

An opportunity or a trap?

The foreign currency bonds in the interim have been beaten out of shape, quoting at a mouth-watering discount of over 30 percent. When questioned by a journalist recently, Mr. Agarwal was unable to answer why the Government is opposing the move to transfer Vedanta’s zinc assets to HZL. After having paid stellar dividends year after year running to over $6 billion –nearly 10 times the acquisition price paid to the GOI—why the deal has not been cleared and is opposed vehemently, the promoter himself is not very sure. He has no clue as to why the company is not getting a free hand to do what it wants to do in the best interests of all the shareholders.   Against this backdrop, let us try to assess the situation in a balanced, rational, and unemotional manner through a series of questions:

1.    Has the promoter failed to deliver what has been promised any time before?

2.    Is the Group a wealth creator or destroyer?

3.    Has the shareholders suffered serious losses due to manipulation in share prices any time before?

4.    Is the promoter involved in any scandal before?

5.    Is there any question mark over the accounting practices of the Group?

6.    Are the banks, financial institutions or financiers failed to receive payments from the Company any time before for any reason whatsoever?

7.    If the zinc assets of Vedanta are transferred to HZL, is there any inherent loss to the existing shareholders of both companies?

8.    Will it be possible for the parent company to raise resources and repay loans as per schedule?

9.    Having faced headwinds several times before, is the company (Vedanta Ltd) not fully equipped to handle the downward cycle in metal prices going forward?

10. With a cash cow in its kitty (HZL) is the Group as a whole really in trouble—either in raising resources from Indian/Foreign Banks or making payments to bondholders going forward?

The 25 to 35 percent fall in the prices of HZL and Vedanta Ltd looks unwarranted as of now. The Bears in the market basically love hazy, foggy situations like this where there is a lot of noise created by analysts, technical experts, journalists, and armchair pundits—giving outlandish reasons of all kinds. For the discerning investor, of course, there is always money to be made from such panic situations. 

 

Single stock investing: Does It work?

Deep dive into the river

The primary objective of investing in stocks is to make decent returns—returns that are fairly attractive when compared to bank deposits. We do not want to keep our money idle even for a day. Because every other guy in the street is making money in the stock market—easy money that too, without any monumental effort. We want to be there at any cost, to feel the excitement at least. We decide to jump into the river—shall I call it the ocean? —without knowing the basics of swimming.

Euphoria, excitement, luck

There is what is known as beginner’s luck. So, when you put your hard-earned money to test—based on the noise created on television channels, seeking expert advice from friends/relatives, and doing your own research—you tend to buy stocks with low Price-Earnings Ratio, fat book value, and available at a fair price (according to you) and usually from the small-cap space which are quoting below INR 100. To spread the risk, you buy a basket of say half a dozen stocks pouring the entire savings into the well within no time. In a rising market, as the saying goes ‘‘every idiot can make money’. Aided by luck, one or two of the invested stocks will touch the sky and your investment tends to double within no time—despite the laggards that do not seem to wake up from deep slumber. Every morning you tend to look at the screen with a winning smile and begin to build castles in the air. Before you could think of buying a new vehicle with the paper profits, the merciless Market gets brutally crushed by forces over which you do not seem to have any control. The prices crash slowly or suddenly—it does not make any difference since you are in no mood to leave the arena with a loss—and the rosy paper money melts down under your own nose. You remain paralyzed for a painfully long time and the shock begins to work on your nerves. When the pain becomes unbearable, you exit after losing your pant and shirt.

Doom and gloom

When you look around, almost everyone seems to have a similar sordid story to tell. If everyone is losing who is making money is the moot question. Obviously, those who have the knowledge, skills, and experience to understand the nuances of the Market. The experts always say: spread your risk, do not keep all eggs in one basket—the age-old wisdom that does not seem to work in your case. In hindsight, when you look back you are certain to find that one stock has definitely made rapid strides ahead of the pack—offering mouth-watering returns. You never booked the profits, expecting a further rise. Other stocks proved to be duds. All in all, to cut short a long argument, only one horse and several donkeys in the portfolio. The story is the same in almost all cases. Some stocks move very fast, some other stocks linger at a slow pace; many others go down the drain without a trace. Is there any alternative to arrest this trend?

Single stock betting

Yes, concentrated investing is a perilous game, the oft-cited appropriate menu for the experienced souls. But it can be a good bet, especially in situations where the resources are limited. To achieve success, you need to gain a grip on the basics:

v Volume: Look for stocks with rising volumes. Look for stocks that exhibit a lot of momentum—stocks that become topics for the dinner table.

v Price: Look for stocks that have a lot of price momentum as well. Stocks that seem to register a steady rise in price over a 5-day/10-day cycle

v Delivery: look for stocks that are seeking a lot of action in terms of delivery. If the delivery percentage is rising along with momentum in terms of volumes and price action—keep a vigil over those stocks

v Beaten down badly: Every expert on the street is giving a negative picture? Every television channel is advising you not to touch those stocks. Identify those stocks and keep them on the radar screen—to pick those fallen angels. Some examples should clear the fog

v Example: Stocks like RBL Bank Tanla Platforms, Persistent Systems, PFC, and NMDC have been at the receiving end of the stick for a long time. There was no soul on earth recommending those stocks. RBL has fallen to INR 80 levels, Persistent has fallen to 3200 levels, PFC was lying at 100, Tanla fell to 550 levels NMDC was a forgotten story.

How to achieve success?

Did you ever clean up the books completely? I mean, selling every stock in the portfolio and marrying the beaten down, fallen angels, putting all eggs in one basket? When a stock reaches the maximum point of pessimism, as Sir John Templeton did, if you have the courage to liquidate your entire portfolio and bought the fallen angle in truckloads, and wait for a rebound patiently—not only your losses will be recouped, you will be rushing back to the bank with a winning smile. All the above-cited stocks have recovered sharply within a 30—60-day span. RBL rose from 80 to 150; Tanla rose to 900; Persistent crossed 4000 effortlessly; PFC rose to 140. (caveat: the chosen stock should have good fundamentals, fallen out of favor due to the negative sentiment over some bad news like in the case of Divi’s Labs—interestingly LIC has been buying this in truckloads in recent times)

Any current example that meets the criteria?

Yes, excellent stocks like LTMindtree, Mphasis, Mastek, and Sonata have fallen out of favor. Every analyst is talking about doom and gloom in the software sector. Have they reached the point of maximum pessimism? Difficult to say, but you can safely liquidate your entire portfolio—sit on cash, pick these fallen angels slowly in lots of say 10,20, or 50 depending on your appetite, and wait for the rebound within a 6-monthly span. I am sure, the tide will turn and bring in rosy returns

Momentum investing

Alternatively, if you have limited resources say INR 2 to 5 lakhs, momentum investing should be your cup of tea. Let me take two recent examples. IRFC and Yes Bank. IRFC was showing all signs of momentum from the INR 17 level. Volumes were rising, price action was positive daily it was topping the volume charts; fundamentals were good—zero NPAs, tax-free status loans to the Railway stocks enjoying monopoly status, etc. If you had bought say 20 or 30K in one go, liquidating the entire portfolio consisting of a dozen stocks with varying degrees of success, you could have reaped a rich harvest. Why go that far? The stock in the news, YES BANK could be a potential winner in the near future. The volumes are humongous. The price action is excellent. Volume topper currently. A lot of hedge funds playing the game excitedly. Can you play the one-up game against the street and win? Yes, possible. Certainly achievable. For that, you need to pool all your resources and play the game patiently buying in lots of 50, 100, or 200 in a 5-hour span daily. After buying say 2000/3000 you take a pause, and look back if the price is rising or falling; if it rises by 50 paise, you begin to sell and get back your entire money. At every fall you should have the money ready to buy small lots; and whenever the price action picks up, you need to exit and sit on cash. The primary goal should be to make money by playing on price and volume action and get back your money without getting dented. If you remain happy with small gains on a daily basis, like a typical hedge fund, you can stay in the game for a long, long time—making decent money all the while.

Friend or Foe: Whom to Trust?

Company of Angels?

We are told, a friend in need is a friend indeed.  We are also told that friends are like angels who are ready to lend a finger to hold on to and a shoulder to cry on.  They mingle with you on a daily basis.  They know your strengths, weaknesses, blackspots, and almost everything.  There is a kind of heart-to-heart exchange of notes on a daily basis.  Over the years, you placed all the cards in their hands.  You went out of the way in order to help someone crying for help.  You sacrificed your time, money, and effort on a number of occasions. You shared their grief and got involved in matters that have dragged you into messy, embarrassing situations, You spent money left and right in order to ensure solace and comfort to the so-called holy cows.   In a brutally competitive world, you thought you need to stand by your friend(s) in order to survive and flourish. You left no stone unturned while trying to extend emotional support apart from financial help on a number of occasions.  It was a pretty joyful journey spanning many, many years. Every moment spent in the company of the soulmates —you were certain were blissful, golden moments.  It was all a thing of the past you realize on the day when the tables suddenly turned against you.    

Sukh Ke Sab Saathi Dukh Mein Na Koi

You are in trouble now.  You got trapped due to reasons not known to you.  The evil forces seem to have laid the trap.  The exit options are few and with every passing moment, the troubles—real or imaginary—seem to multiply.  You remain unfazed, unmoved, and not at all perplexed. The reason is simple; you have a vast army of friends who would come to your rescue and save you from awkward moments of any or every kind.  You begin to knock at the doors of comrades, associates, colleagues, and acquaintances from the Holy book preserved by you.  A series of calls remain unanswered. The people who borrowed your hard-earned money for buying daily groceries and cigarettes seem to have found a new companion.  The ones who walked into your bedroom at midnight seeking your help seem to have gone into a deep slumber.  The ones who had free lunch in your home almost every alternate day seem to have forgotten your name. 

Traitors, conspirators & turncoats

Therefore, be wary of friends for they are the ones who betray you in no time. You learn now that they were jealous.  They resented your success and popularity.  They did not like the way you were crossing milestones in your professional life.  They swallowed the agony in silence for a painfully long time   The problem was that you often did not know your friends as well as you imagined.  They seem to have agreed with you, in order to avoid an argument.  They played a cover-up story all along in order to suppress their evil thoughts and negative feelings.  All the time they were singing a song in front of you glorifying your achievements beyond description.  You believed those comments as genuine and real.  Now when life has turned upside down, you are able to draw the curtain between friends and foes.  Each passing day you realize that the same friend whom you trusted most has joined hands gleefully with your enemies in order to settle scores.  Most others seem to have put their self-respect, dignity, and honesty on the mat while trying to show the door to you.  The carping & ridicule continues for days together while you are being hunted in the economic jungle. When you are able to put the finger on the problem causing trouble finally, you realize that they were resentful of everything.  Not only your success but the success of even your children.  At the first available opportunity, they are now hand in glove with your enemies in order to satisfy their insatiable hunger for revenge.

Trust your enemy

Bad moments force you to indulge in serious introspection.  You look at the ledger of plus and minus points more closely.  You are ready to look at life afresh focusing on where you were less careful, casual, and reckless.  You begin to appreciate why the enemy is out to exploit the weak points.  Either you have to fight back or yield your ground meekly and surrender.  You find in hindsight you are fighting with those whom you trusted most, whom you respected most, and whom you embraced most.  Suddenly you put all your competencies and capabilities to the test.  As Robert Greene said:  “Without enemies around us, we grow lazy. An enemy at our heels sharpens our wits, keeping us focused and alert. It is sometimes better then, to use enemies as enemies rather than transforming them into friends or allies.” The enemy would make you think twice before initiating action.  You are compelled to generate multifarious options before marrying one.  Forceful, innovative, and creative actions replace casual, reckless, and lackadaisical moves. When you begin to tread the path cautiously, you minimize the chances of failure.  When the problem is tossed around and you kick in multiple ways to attack it ruthlessly putting all your energies to work, solutions surface almost from nowhere.  You realize you are at your best when confronted with problems created by the joint army of friends & foes moving hand in hand.  Remember the saying: ‘the wise man profits more from his enemies than a fool from his friends’.  Knowing what would happen if you put a finger in the mouth of a lion, you would stay clear of it.  With friends, you will have no such caution, and when you begin to trust them, they will eat your life with ingratitude—trying their best to remove your glorious name from the corporate lexicon.  As Greene rightly concluded:  ‘never let the presence of enemies upset or distress you—you are far better off with a declared opponent or two than not knowing where your real enemies lie’. 

(with grateful acknowledgments to Robert Greene, “The 48 Laws of Power”, Profile Books) 

 

FINDING BARGAINS IN THE STOCK MARKET

What are bargains?

Bargains are rare to find in a market, thoroughly scanned by millions of investors every minute.  By nature, they are hated, discounted and neglected, or ignored completely.  They do not fit in a ‘respectable’ portfolio.  No one wants to own them.  They are orphans and the very thought of putting them by the side of darlings of the market in your portfolio would be a big blunder.  If the entire market is telling you a depressing, sad, and painfully long story of less-promising companies, why would anybody want to invite them into a party?  Typically, they are like the uninvited guests in one’s portfolio.   A healthy portfolio, by nature, must consist of the best candidates, leaving very little room for the lesser ones, and staying clear of the worst.  Bargains, in short, are unappreciated, unpopular, and unloved candidates.

Why look at bargains at all?

Ultrasafe securities, usually, deliver uninteresting returns.  There is always a mad rush to marry them in the marketplace.  Because they are over-owned and over worshipped, there is very little chance of such securities giving mouth-watering returns.  To outwit the market consisting of smart and intelligent souls, you need to take a contrarian path.  This is where bargains matter.  They are

·       Unnoticed, ugly ducklings of the market

·       Devoid of strong fundamentals

·       Encircled by controversies of various kinds

·       Apparently unworthy investment candidates

·       Known for delivering consistently poor returns

·       Perceived by all as useless investments

Why would anyone want to marry such an ugly candidate?  As the saying goes, if everyone feels good about something and is happy to invest readily, it won’t be a bargain after all.  Bargains have fallen out of favor and lost their sheen and value for valid reasons.  If everyone thinks and feels bad about a company that was once the darling of the marketplace, then certainly one must take notice of such a company. 

Where are those bargains?

Discerning investors look for good buys.  They constantly chase stocks where there is a price-value mismatch, where the price is low relative to value, or the potential return is high relative to risk.  Investors chase stocks that consistently deliver good results.  When the demand for such stocks reaches maniac levels, prices peak out.  The seemingly good quality stocks, turn into bad buys because of over-ownership.  To make money, therefore, one must focus on stocks that have gone out of favor due to irrationality or incomplete understanding.  Usually, bargains are found in situations where investors fail to assess an asset fairly or fail to look beneath the surface to understand it thoroughly or fail to look at the shining side of a scorned asset.  Such bargains are not topics of discussion at cocktail parties.  Usually, the price of such assets keeps on falling and falling.  They grab news headlines for the wrong reasons.  The market keeps on punishing the stock till it turns into a bottomless pit.  Poor performance would sink the stock price to rock-bottom levels.  Capital stays away from it or flees, and no one can think of a valid or solid reason to own it under any circumstances or at any price.  In short, the perception about the stock has become worse than the reality.  No one has a good word to say about any of such companies.

Investing in bargains

Bargains, as is clear from the discussion, offer deep value at unreasonably low prices.  To make it big, therefore, bargains deserve a closer look.  Cycle-fighting, contrarian investors have a golden opportunity to buy those distressed assets at irresistibly low prices.  if you hang on to bargain buys till the market begins to assign a ‘fair value’ you would be laughing all the way to the Bank. 

 

WHAT TO DO WHEN THE MARKET CRASHES?

             Introduction

You need skills of a different type in order to make money in a falling market.  When the market crashes in a big way, the first reaction is to get panicky.  Falling markets have a numbing effect on the mind.  The emotional side would force you to look at the dark side of the coin first.  The losses look unbearable or even unthinkable.  It is a red screen all over the place.  No green tick anywhere.  Such a sordid and scary scene that we do not witness during normal days.  You would see for the first time, winners and losers performing a lethal dance in front of you.  In a crashing market, there are no winners.  The only winner is the ‘cash’ component that you hold.  Of course, cash is king ALWAYS.  You would witness the best stocks; the very best stocks or the so-called gems fall like nine pins.  The stock market is actually a house of cards. It is fragile and pretty weak internally—but does not look like that during normal days.  We begin to build castles in the air, being used to looking at the green screen almost every day, especially in a bull market.  The humongous profits made during this phase would melt away within a fraction of a second—if you do not rise to the challenge and take appropriate actions.

Control emotion

Let us face the reality.  Yes, the market has crashed.  The real gems have taken a beating.  First, it was 10 percent; followed by another 10 percent and so on so forth.  Finally, a day will come where the losses on each stock would mount to 30 or 40 percent.  This would compel everyone to think, ‘did I commit a blunder by betting on these stocks’?.  When the losses become intolerable, you offload the stocks in a panic.  Panic is the first reaction of investors when you come out of the room with dents all over the mind & body.  Professional advice pours in now from every channel. ‘ Do not sell in panic’ – is something that every discerning investor is aware of. But if we do not sell, the stock falls continuously day in and day out.

Shall I sit on cash?

What if you sell the portfolio on the day when you get convinced that the market is not going up anymore?  Yes, when you sell the entire portfolio and sit on cash, further losses could be arrested.  Say on a portfolio of one lakh, you can assess how much pain you can tolerate—that is 10 percent or 20 percent on the entire portfolio.  Once you get out of the Market and watch from the sidelines—you can see many more Gems going down the drain.  You need not hang on to stocks that are no longer fancied nor loved by the market.  You can take a refreshingly fresh look at other stocks that you were thinking of buying, but could not buy due to their expensive valuation. 

Rebalance your portfolio

Market crashes offer the biggest opportunities to own the real ‘winners’ that have taken a big knock.  Because usually, the most fancied, most loved, and highly over-rated stocks would crash in a big way.  The stocks that you own may not fall in that category unless you are an expert in portfolio management.  So now you have market leaders available at mouth-watering prices.  instead of sitting on lame ducks, you can now own ‘market leaders’ that would rise from the ashes when the market regains its sheen and value. 

Passivity and Inaction

When the Twin Towers were attacked, the first reaction of those guys in the second Tower (the best financial brains in the world, from prestigious Ivey league Universities but well trained, stock market experts) was to get out in a fraction of a second without any second guesses or thoughts.  The Ups and Downs in the Stock Market taught them what to do when the emergency button is pressed.  A market crash is a rare, once-in-a-lifetime kind of opportunity. it offers you a chance to listen to the voice of reason.  Once the emergency button is pressed, you have to keep your cool and rush out before it is too late.  Once you sit on Cash, you are able to marry stocks of your choice—stocks that you could never own because of steeply high valuation—the so-called market leaders leisurely at carefully spaced intervals, observing market movement.  Passivity and inaction would sink your portfolio, denting your fragile heart every second.  Once you stuff the portfolio with market leaders, you can relax and heave a big sigh of relief.  One more advantage in owing market leaders is the fact that they usually do not have filters on the way up, and once the sentiment turns positive, those stocks can rise 10, 20, or 30 percent in a day!!!