Friday, July 13, 2012

Is this India's most undervalued firm?

Mention the word sovereign bonds and chances are that countries like Greece and Spain would shudder with fear. After all, it is these very instruments that played a pivotal role in their near-bankruptcy like experience.  That sovereign bonds held by foreign investors are the ultimate weapons of destruction is not something that has been brought to light recently. For as Ajit Dayal, our founder, explained in his latest web summit, nearly every country that has gone bankrupt over the past few decades had its downfall engineered mostly by sovereign bonds that were held by foreign investors. Clearly then, the flotation of a sovereign bond overseas does carry a great deal of risks.

This is not all. As Ajit rightly highlighted, the rampant speculation in these bonds has the potential to dislocate the entire cost of capital structure of an economy. And lead to wild fluctuations in currency as well as GDP growth. Is it any wonder that despite intense lobbying by banks and Wall Street firms, India's central bank has chosen not to issue sovereign bonds to foreign investors?

This is not the first time though that the Reserve Bank of India (RBI) has come to the rescue of Indian economy. Time and again, it has played the role of a responsible monetary authority to perfection. But does it get all the accolades it so richly deserves? We do not think so. Infact, at times, it is the subject of unnecessary criticism. Take the recent case of the central bank receiving flak from corporate India for not lowering the interest rates. We liked immensely the attitude of the RBI of not bowing down to corporate pressure and instead, going strictly by rule book. Clearly, if there is one truly undervalued and underappreciated firm in India out there, it has to be the RBI we believe.

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