Foreign investors lose faith in public sector units—again!

Poor returns, a weak government with no appetite for reforms have scared off many investors, including foreign investors from the stocks of PSUs. In the mid-90s, many savvy investors had met with the same fate and swore not to invest in government company stocks. This only shows how and why even institutional investors repeat the same mistakes again and again

On Thursday 9 August 2012, Jeff Chowdhry of F&C Asset Management, was quoted in by Bloomberg as saying that “We are reducing exposure to state-run companies... Most portfolio investors are saying: I am only going to invest in companies that are private sector, and as far removed as possible from government policy”. Rewind back to 1996, an outspoken fund manager Samir Arora, had made a nearly identical comment and had remarked that he would like to invest in companies that have little to do with the government. He had burnt his hands investing in Hindustan Petroleum Corporation (HPCL). What has changed within a spate of 16 years? What has definitely not changed is the fact that investors, especially institutional investors make the same mistakes repeatedly despite obvious facts staring at their faces.


Foreign investors have been selling stakes in state-owned corporations and have decided to focus on the private sector instead, as they have run out of patience with the Indian government. The fact that PSUs would be bad investments is obvious to anyone who has some idea of how these companies are run. We all know that public sector units (PSUs) have no autonomy and are effectively run by the ministers through the secretaries. It has been so for decades and there is simply no incentive anywhere to change this. Unfortunately, sophisticated investors seem to make the same mistakes over and over again.


Consider the returns that all the PSUs have made in the last one and two years. The Sensex has given returns of 3.59% and -3% respectively. Over the last two years, only 12 out of 60 public sector units were able to outperform Sensex. The statistic worsened when only three companies out of 60 outperformed the Sensex. Such abysmal figures are not surprising given the history and attitude of the government towards economic reforms, particularly PSUs.


In fact, speaking of public sector units, way back in 2000, G Ganesh, former member-secretary, Disinvestment Commission, admitted that the Indian public sector has been made sick “due to the absence of a competition policy with statutory regulators, lack of corporate governance and entrepreneurship and a huge unproductive labour force.” Nobody paid attention and turned a blind eye towards this honest observation. Here is what he remarked then, and it still applies today:


“We need to restructure Public Sector Undertakings on a war footing as most public sector units, barring a few which are monopolies, are bound to report to BIFR within the next two or three years, unless radical steps are taken for reforming them. Restructuring methods should, therefore, encompass the fields of business organization and finance. Today, most restructuring, which is being attempted pertains merely to finance and hence becomes unsuccessful. Corporate governance of public enterprises is the need of the hour. This includes proper autonomy that is permitting public enterprises to function as commercial entities, free from the clutches of the Government to take all investment and pricing decisions, no interference from their owners. This will also entail selection of the right CEO through a transparent, impartial process. This will in turn ensure the accountability of the CEO and the board members.”


Public sector units do not operate like their private sector counterparts, the latter which creates value vis-a-vis minimal use of capital, lean operations, innovation, empowered managers, high quality of recruitment and training programmes. Very few, if at all, government-controlled company have any of these essential qualities. Capital waste, the key value-destroying factor, is a common feature. Instead, public sector companies have been seen as a solution to short-term ills, from helping the government cut budget deficits, to rekindling foreign investors’ love affair with Indian stocks (give it to them cheap, increase FDI limits, etc), to bringing back retail investors (sell it below market price) and to push up the stock market.


Even using tax payers’ money to bailout a flailing airline that continues to make losses is one of the government priorities. There is no clear policy on how such companies ought to be run and managed. Unless reforms take place, public sector will continue to bleed tax payers’ money. Yet institutional investors forget all this and react with optimism when the government talks of reforms.


Consider recent IPOs of PSU undertakings. How have their performances been? Five of the last 10 IPOs have fared worse than Sensex on an annualised basis. Only two have given decent returns. Coal India, one of the most promising public sector units, in terms of resources and scale, has barely given positive returns.



IPO Price

Listing Price

CMP (8th August 2012)

Annualised Returns

Sensex Annualised Returns

Rural Electrification






Power Finance Corp






Power Grid Corp






Coal India






Oil India






























Punjab & Sind Bk







Institutional investors though, as usual, had got carried away with the notion that PSUs are great opportunities. With limited growth prospects, increased competition and managed by remote control, long-term value creation by privatised public sector units will still be elusive. Don’t hope too much as elections draw closer, the chances of government taking bold and uncomfortable decisions looks unlikely. But be certain that 10-15 years later another institutional investor will again think that PSUs are great bets.


The truth about Mercedes Benz India-1: Sneakily replacing dangerously defective parts!

Cama Motors, a highly reputed and one of the oldest dealers of foreign cars, has made allegations of murderous malpractices of Mercedes Benz. It charges Mercedes of being neck-deep in a variety of immoral and unethical practices

Would you believe it if you received a letter from Mercedes Benz informing you that you had won a lucky draw and your gift was a “FREE INSPECTION!!” But they actually want to replace your turbocharger without informing you? Or would you believe that Mercedes Benz engineers discovered that the clutch assemblies of their cars across the board were remaining stuck to the floor when warmed up. But instead of immediately pulling every single car off the road, they took eight years to first secretly fit a heat shield (hiding the purpose from dealers) and then developed an insulated bodied clutch which was selectively fitted to the “problem cars” thereby putting countless lives at risk for years?
These and many more shocking incidents have been exposed by none other than an extremely reputed ex-dealer of Mercedes Benz. The dealer in question, Cama Motors, is in this business for over 120 years. Back in 1931, Late Khan Bahadur Rustom Cama brought dealership of Ford Motors to Ahmedabad and even today it is regarded as a memorable landmark not just for local people but also for Ford. Remember, the first car in India came through a Mumbai-based Englishman only in 1897. 
Having discovered to his horror the above sneaky, surreptitious malpractices, Rustom Cama, executive director, Cama Motors, has filed a number of complaints against Mercedes Benz India with every concerned authority, including top management of Daimler AG, German Embassy in India, Competition Commission of India (CCI), and the ministry of surface transport. However, he got no response from anywhere. 
Frustrated, he has created a website to describe decline in quality of Mercedes Benz cars over the years. The welcome line says, “Cama Motors deeply regrets its association with Mercedes Benz”.
The website says, “...service measures were carried out as part of a continuous campaign which we (dealers) were told was in keeping with the tradition of ‘continuous improvement’ according to Mercedes Benz India.”
“We never understood or expected that some of these campaigns, which amounted to removing parts and software and replacing it, were connected to life-threatening defects. We ourselves were so embarrassed by the pathetic quality that we blindly carried out these measures which you will undoubtedly be disgusted by when you see the details.”
“It was only after many years that we could no longer remain in denial and we began to piece the details together, painting a picture of a company murderously involved in malpractice of the most serious kind. We are sure that it will shake the world of consumer rights when people are made aware of the deceitful way in which this company has tried to cling to its past glory, while being neck-deep in immoral and unethical practices,” it says.
Speaking about his experience with the dealership of Mercedes Benz, Mr Cama said, “After trapping many reputed dealers like us, over the years the company modified its relationship with dealers. It also included several new clauses and non-disclosures pacts in the agreements. When dealers like Cama Motors became a liability for the company, one by one we (dealers) were harassed and some were even destroyed. Over past few years, 13 dealerships have been closed, mostly with severe abuse of power from Mercedes.”
According to Mr Cama, his latest effort on the web is to develop a resource for customers of the many mysterious defects, which it was kept in the dark about. His website also gives information to customers who bought their Mercs from Cama Motors to check if they were cheated by the company using the dealer or not.
Moneylife sent mails to Mercedes Benz India asking them about the allegations made by Cama Motors. The response from the company would be added as and when we receive it.



Parimal Raj

5 years ago

My experience with Merc ownership has been altogether different than what has been mentioned here. But rather than explaining those things, I would like to know why was the dealer silent for so long ? Why he came out with this when he was fired from dealership ?
As far as clutch plate is concerned, I think this must be age old story as new one comes with auto transmission, so no manual interference. Mine has 7speed 7G tronic auto trans & it is one of the best I have used, far better than my BMW.

Now please see the following links -

BMW to pay $3M fine for US recall issues -

BMW North America agrees to $3m safety fine -

But still I trust my Beemer (BMW). Similarly, for me Mercedes remains my first love [hope my girl friend is not reading this ;) ] and no matter what is being said, my experience is fantastic and hence least bothered about it.
BTW, I feel 99% of comments made on this article are by those who have never owned a Merc, which is best to be ignored.

And those who feel Volvo is safe, also need to look at this video -

Apart from this, I would like to thank you Ms. Dalal for publishing my comment in your article on Worldspace Radio when it was discontinued.

P M Ravindran

5 years ago

Not only Merc but any scoundrel can get away with any crime in India because what we have for a govt is the biggest mafia in the whole world!

nilesh prabhu

5 years ago

Even HP does the same thing, first they sell a printer and after two year provide no spare parts and compel customers to buy new printers.

Big scam

nagesh kini

5 years ago

Our home grown Marutis, Tata and M&M vehicles are any day far better!
Today's papers report of Ford recalling 1.28 lakh Figo and Classic in one of the biggest ever exercises.
The liberalization ought not to have extended to opening doors to the luxury segment diesel guzzlers that occupy a lot of road space.
In the bargain we have more of the videshis. They need to be curbed by a heavier dose of taxation asap!

Vinay Isloorkar

5 years ago


"It will shake the world of consumer rights when people are made aware of the deceitful way in which this company has tried to cling to its past glory, while being neck-deep in immoral and unethical practices" Well said Cama Motors!

The marketplace is a great leveler. No wonder BMW and Audi are giving a fitting reply to Mercs' snobbery. In fact, if you have the moolah, owning a Merc today is infra dig.

Wilderness Films

5 years ago

For me, it was simple. I bought a new E class back in 2001 and it was so terrible to start with - so plasticky and plain on the inside, and so dreadful in terms of performance, that I swore to never buy another Mercedes and leave the brand to the new-money-upstarts who so love it, for their know no better!

My litany of complaints:

My new car developed three major problems, all within the first few thousand kilometers.

The car had driven just 1000 km. in all, and the sensors stopped working. Every time I start the car, the ESP, ABS and other sensor alarms all start going off, advising me next to visit the workshop! I have started ignoring them, which kind of defeats the purpose of having this complex sensory system in place. Having sent the car back to the workshop on three occasions within the first 2000 km. these remain unfixed!

This appears to clearly be a recurring defect in the car. Perhaps I have been given a defective car?

I seem to be facing a lot of trouble with my almost-new E220 CDI, which was purchased new in October 2001. First, the sensors stopped working when the car had been driven only a few hundred kilometers. I got rather alarmed, when I was a few hundred kilometers outside Delhi, and the car LCD ordered me to return to the workshop!

That repaired, now at the ripe old age of 2800 kilometers, my car's air-conditioning system has altogether stopped working. I have checked the fuses and they seem to be fine. I have been trying to call T&T Motors since Saturday evening, and their weekend duty guard seems set on banging the phone down on me, without giving any information.

I am such a careful driver (the condition of my car stands testimony to this) and I drive very gently, so there is no way that poor driving conditions could be responsible for the airconditioning having stopped working.

I can't drive the car till the air-conditioning is restored or repaired, depending on what is wrong with it.

In changing the sensor, I find that the car has been driven close to 150 kilometers. How can this be possible? It has merely gone to your showroom and back to my office, ostensibly. Also, a full tank of fuel is now down to a three-quarter-full tank. Perhaps someone used the car unauthorizedly while it was at your workshop? Please investigate. I also noticed over six fresh scratches, among other places, around the driver's side door opening handle. Again, please investigate.

I recall that someone else was driven in a customer's car when I came to test drive the Merc, prior to buying it. I am concerned that my own car was perhaps used as a temporary test driver vehicle during the sensor repair job, which would easily explain the extra kilometers runs, and the scratches on the paintwork...

I think I wouldn't have faced such early problems if I had bought even a Maruti 800!

Udit C

5 years ago

Shocking, especially to see that Mercedes also haS new ideas on what one can get away with in India.

Impressive benchmark for business ethics in India.

L&T Construction gets Rs2,008 crore contracts in July-August

L&T's buildings and factories segment has secured orders worth Rs674 crore, while power transmission and distribution received orders of Rs607 crore during the two months

Mumbai: L&T Construction on Monday said it has received orders worth Rs2,008 crore across various business segments during July and August, reports PTI.
Its buildings and factories segment has secured orders worth Rs674 crore, which includes an order from Airports Authority of India for the construction of a new integrated terminal building and allied works at Chandigarh Airport, the company said in a statement issued here.
Its power transmission and distribution segment has bagged new orders worth Rs 607 crore in domestic and international markets, including one project in Uttar Pradesh.
The firm's infrastructure arm has won order worth Rs275 crore from Kolkata Metropolitan Development Authority.
The company's water and effluent treatment segment has won a turn-key project worth Rs155 crore from Greater Mohali Area Development Authority, Mohali for construction of roads, electrical services and also development of parks and horticulture works.
Further, L&T Construction has secured additional orders worth Rs297 crore from various ongoing projects across business units, it said.


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