The actor, who has been handed down five years imprisonment by the Supreme Court in the 1993 Mumbai serial blasts case, said he had the highest respect for the apex court and will abide by all terms and conditions put forth by it
Bollywood actor Sanjay Dutt, who has been ordered by the Supreme Court to return to jail to complete a five year sentence in the 1993 Mumbai blasts case, today said he has not sought any pardon and will surrender in time.
Amid a growing cry for his clemency, 53-year-old actor said, “All I can tell you is I have not applied for pardon. There are many other people who deserve pardon. I want to tell with folded hands to the media, the honourable citizens of the country that when I am not going for pardon then there can be no debate about it.” Dutt broke down during his interaction with the press in Mumbai on Thursday.
The actor, who has been handed down five years imprisonment by the Supreme Court in the 1993 Mumbai serial blasts case, said he had the highest respect for the apex court and will abide by all terms and conditions put forth by it.
“The Supreme Court has given me time to surrender and I will surrender in that time,” he said as sister and MP Priya Dutt comforted him.
As Dutt has already served 18 months in jail, he would have to undergo the imprisonment for three-and-a-half-years. The apex court has given him four-week time to surrender.
“I am shattered and this is the tough time in my life. With folded hands I request the media and citizens let me be at peace,” he said. Several noted personalities including Press Council of India chairman Markandey Katju actor-turned-politicians Jaya Bachchan and Shatrughan Sinha had sought pardon for Sanjay Dutt.
When pointed out that Dutt will not seek clemency, Katju, however, said he will go ahead and apply for his pardon. Katju had said Dutt should be pardoned under Article 161 of the Constitution as he had not been found guilty of having played a role in the 1993 blasts and had suffered a lot.
Asked about Dutt’s stand, Congress spokesperson Rashid Alvi said that the party does not comment on judicial matters. Expelled Samajwadi Party leader Amar Singh and Rampur Lok Sabha MP Jayaprada had on 26th March met Maharashtra governor K Sankaranarayanan here and sought clemency for the actor.
Diversification is just a means to create a portfolio which is expected to provide good returns as well as reduce risk. However, diversification does not guarantee successful achievement of investment objectives
Diversification is a much talked about subject in finance. Right from our first lesson in diversification which says, “Do not put all your eggs in one basket” to Harry Markowitz research on efficient portfolio, literature on finance is full with detailed analysis of diversification and its benefits. It is common to find experts say that if an investor wants to reduce risk, he must diversify his portfolio. So what is this diversification that is supposed to provide immunity to portfolios from risk?
In simple words, diversification is a risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. So the common suggestion is that one should invest in equity, fixed income and other asset classes to overcome challenges posed by the erratic behavior of financial markets.
While the apparent objective of diversification is to reduce risk and potentially enhance returns, there is an opposite school of thought that does not buy the logic and need for diversification. One of the greatest investors of our time and wealth creator Warren Buffet believes, “Diversification is a protection against ignorance. It makes very little sense to those who know what they are doing”. While the number of those who know what they are doing may be less, the statement commands a great amount of merit. Another great investor Jim Rogers says, “The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket”.
History is replete with examples which show that people have created wealth without diversifying and also without exposing themselves to risks. However, it may not be possible for all investors to create wealth without diversification. After all, a common investor is neither Warren Buffet nor Jim Rogers. An investor will always have fear of unknown. So what should he do? Should he diversify his portfolio or depend upon known investments without bothering about diversification. While it is obvious that investors get preached often on the need for diversification, let us look at the some of the reasons because of which diversification may not work for common investor:
Asset allocation is required for diversification but mere asset allocation does not ensure diversification: Investors often confuse diversification with asset allocation. The general belief is that by adding more asset classes in your portfolio or by adding more variants of same asset class, the portfolio risk will automatically get reduced as portfolio is diversified. Very often there is a discussion on how many schemes of mutual funds an investor should invest so that the investments in equity get well diversified. In other words, how does the benefit of diversification of benefit apply and to what extent it is effective? There are some generic answers available for these questions. In response to mutual fund investments, most experts suggest five to seven schemes without carrying out a genuine study on diversification benefits and also knowing well that some risks cannot be diversified.
In other cases, the generic answer given is—either have more stocks in your portfolio to make it diversified, or add fixed income in equity to diversify the portfolio. Let us look at the carnage that we saw in 2008 in the Indian stock market as well stock markets around the world. There was not even a single sector which was left untouched from the events that unfolded post crisis in the US. A very well diversified equity portfolio got hit as badly as not so a diversified portfolio. So in a bad or non-performing market, diversification does not essentially work. Even in cases, where stocks, fixed income and other asset classes such as gold is there in a portfolio, there may be limited benefit of diversification as it will depend upon asset allocation and may ultimately defeat the objective of highest possible return with lowest risk. This kind of portfolio can only give nominal return to the investor which may be less than risk-free investment in a standalone basis.
Investors have limited understanding and information on co-relation factor and diversification ratio of asset classes: Co-relation is a critical factor in understanding risk. It gives an idea about how different asset classes are related to each other in terms of returns. The co-relation between some of the asset classes are known but not all asset classes. It has been often observed that investment in gold provides safety net during crisis. This means that when performance of other asset classes is under strain, gold performs in an opposite way. However, such kind of information is not available for all asset classes and hence an investor may end up investing in different asset classes which have limited co-relation benefits. Two positively co-related asset classes may act against the investor’s interest during the period of non performance.
Apart from co-relation factor, many investors do not understand the concept of diversification ratio on which the modern portfolio theory is based. This ratio is the portfolio’s weighted average asset volatility to its actual volatility. The result of this calculation measures the essence of diversification. In fact, it may be practically possible for an investor to apply this ratio in investments.
Systematic risk cannot be eliminated with diversification: Investments are prone to systematic and unsystematic risks. While it is possible to reduce unsystematic risk by diversifying investments, systematic risk is something that all investors have to accept. In a country like India, the recent experience of political idiosyncrasy is a clear-cut example of how investors are left exposed to high risk in equity investment in spite of other things remaining constant. In fact while global markets are almost booming, investors in stock markets have lost heavily. Other systematic risks associated with government policies, interest rates and global economic outlook is not possible to predict and hence diversification won’t work.
While diversification has so many limitations, why it is that diversification is often recommended as a strategy as part of investment. Diversification is just a means to create a portfolio which is expected to provide good returns as well as reduce risk. However, diversification does not guarantee successful achievement of investment objectives. Recent experience of crisis world over shows that even after diversifying a portfolio, an investor may not be safe. In many countries during the recent global economic crisis, all financial assets have moved in one direction showing limited benefit of diversification. Diversification needs support of the market to perform and does not essentially provide protection against the vagaries of the market.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)
When US-based SEC can demand change of auditors or re-audit, why can not the Indian stakeholders and/or regulators do the same with greater vigour?
Three independent adverse press reports have recently appeared on three big names in the Indian corporate world—State Bank of India (SBI), Wipro and Sesa Goa. All point to the quality of the audit process.
Following the Satyam fiasco these reports should sound as second wake up calls for the audit profession and the regulators—the Institute of Chartered Accountants of India for the audit profession, Securities and Exchange Board of India (SEBI) for corporates and the Reserve Bank of India (RBI) for the banks.
When SEBI failed to act, the Competition Commission of India (CCI) stepped in to fine the National Stock Exchange (NSE) Rs55crore for “abuse of dominant position”. This speaks of the extent which our regulators go.
The Hindu Business Line had a front page headline—“RBI finds deviations in SBI bridge loans to telecom cos”. The report goes on—“Unicor was sanctioned a bridge loan of Rs2,500 crore without identifying any financial institution for part-financing capital expenditure pending long-term project finance tie-up, neither was there any committed financial tie-up at disbursement in February 2009 when they ought to have completed the roll-out within a year of getting the licence by February 2009. A year later a regular term loan of Rs9,475 crore was sanctioned for the entire project, including Rs2,850 crore to replace the earlier bridge loan when there was no committed tie-up in place. Rs6,625 crore was not released, but the bridge loan rolled out till December 2010”.
Similar bridge loans/bank guarantees extended to Loop Telecom-Rs725 crore, Datacom Solutions- Rs1,100 crore, Swan/Etisalat-Rs395 crore were either adjusted against a regular loans extended later or rolled over. Reliance Communication was sanctioned an unsecured corporate loan of Rs.2, 500cr for capex without any assessment of credit requirements even when the unsecured loans on that scale were simply not permitted. The banks are subjected to a plethora of audits—Concurrent and Inspection, Revenue, Branch and Statutory Audits. Additionally they have Chartered Accountants on their boards of directors, ostensibly monitoring, too.
The second page Business Line has another report—“SEC asks Wipro to prove its auditor KPMG India is independent”. Failure to do so, Wipro may have to appoint new auditors or get its business books re-audited. This was following the detection of embezzlement of Rs32 crore.
The Free Press Journal reports that the ministry for corporate affairs’ Serious Frauds Investigation Office (SFIO) has recommended prosecution of Sesa Goa on nine counts for over-invoicing of imports by Rs14.6 crore, sales by Rs.42.51 crore and under-invoicing of exports by Rs 1, 200 crore and excess payment of agency commission of Rs40.6 crore. The SFIO also accused the company’s independent directors and statutory auditors for not co-operating and recommended their prosecution.
These major misdemeanours on the part of the companies’ professional independent directors, quite a few generally CAs, heading the Audit Committees, leading up to their dereliction of duties as much as on the part of their Statutory Auditors does not augur well for corporate governance.
The US SEC (Securities and Exchange Commission) appointed Public Company Accounting Oversight Board/PCAOB, conducts inspections and publishes a portion of each report. A portion of its contents dealing with discussion of potential defects in the audit firm’s system of quality control remains non-public if the auditor addresses them to SEC’s satisfaction but failure to satisfactorily address the matters within twelve months they are made public. The Sarbanes Oxley Act (SOX) in the US has imposed internal control review requirements on auditees as well as registration and quality control reviews on their auditors.
In India we have yet to see the likes of either the PCAOB or SOX. Our new Companies Bill is being tossed up and down for years now with the Indian accounting regulator, the ICAI, pussy footing, the minister for corporate affairs tearing his hair in anger. Here we have a Peer Review mechanism for the review of the Auditors’ papers by another firm of CAs. So far nothing has come in the public domain of any adverse observations, if any, reported.
The Reports of the PCAOB as well as Peer Review of Satyam’s Audit as of the four need to be immediately put on the ICAI website, to lend credence to the quality of audit processes and procedures. The institute’s statements on practices, standards, guidelines, et al, notwithstanding.
The Satyam saga has brought out numerous skeletons now added thereto Wipro with a Rs32 crore fraud, the banks in the telecom companies as well over exposing their advancing norms by granting lines of credit to RIL, ONGC, BHEL and IOC.
The actions, if any, initiated by the three regulators—the ICAI, SEBI and RBI—needs to be put up in the public domain by each of them to satisfy the Indian nation that they are not silent barking watch dogs but active blood hounds with teeth.
The SEC fined the auditors of Satyam millions of dollars in the US for audit deficiencies in India, the Indian regulators here owe an explanation as to why action is not initiated more particularly when the CBI has enough of damaging facts on the Satyam audit.
The actual unabridged reports need to be put up on the ICAI and/or MCA and/or SEBI websites to enable the stakeholders to take a call on the overall quality of audit for which crores of rupees they get paid as audit fees for which the auditors furnish a very guarded Auditor’s Report when all that they report on is neither true nor fair, nor fairly true or fair nor neither!
When US-based SEC can demand change of auditors or re-audit, why can not the Indian stakeholders and/or regulators do the same with greater vigour?
(Nagesh Kini is a chartered accountant with a long stint of audit exposure. He is now an activist.)