Safe and sound

The response to recent IPOs indicates that optimism about the future overwhelms the affirmative steps by the regulator

By Mohan Sule

The importance of foreign investors in the capital markets has been drilled into Indian investors’ collective conscience. Their presence in a stock is taken as a stamp of confidence in the corporate governance practices and outlook. They are known to prefer companies with liquidity on the trading floor. However, there is a downside, too. Just as they enter a stock with a big bang, their exit can play havoc with the valuations. Their departure is not necessarily linked to domestic issues and is often influenced by global events over which the local government and companies have no sway. Many of the foreign investors in India are pension funds or insurance companies, which can take exposure only to counters that meet the parameters laid out in their investment objectives. Most of them buy only index constituents. Many select scrips that are available in the derivatives segment so as to hedge their cash market positions. As a result, the price earnings ratios of quality stocks spurt so as to go beyond the reach of the ordinary investor. Deserving mid caps capable of delivering stupendous capital gains are ignored either due to the modest outstanding shares or because of the inability of these investors to breach their mandates. To ensure that the inflows of foreign funds are spread out across the board, it is necessary that companies expand their capital. An economic climate that holds the promise of increase in consumption can embolden enterprises to undertake fund-raising. It is at a delicate juncture when the economy is at the crossroads of bottoming out and bouncing back that the vacuum of retail investors is realized.


As small investors take small bites, the advance in prices might not be as sharp but then volatility is also low. Many of them hold their investments for several years and are happy with regular dividend payment, allowing companies the flexibility to plan for the long term without being bogged down by quarterly targets. Also, decisions are based on domestic considerations and company-specific events rather than second guessing the actions of the central banks around the world. Despite the global financial turmoil post 2008 liquidity crunch, China’s equity market did not panic like other emerging markets with large foreign institutional presence as retail investors constitute a majority of the investing community. It is not that our policy makers are not aware of the positive impact of the small investors on the equity market. Market regulator Securities and Exchange Board of India keeps on tinkering with guidelines to address the problems faced by the marginalized investors. These have included recalibrating the proportionate allotment of shares, increasing retail quotas, discount on the offer price, shorter listing period, debiting of subscription only on allotment, ban on withdrawal of bids by institutional investors, buyback of new shares by promoters and increasing the investment limit. There is also a move to direct companies to declare their dividend policies. Yet the revisions in various regulations were not followed by a spurt in retail participation.

There is a point up to which a safety net can work. Investors want transparency from companies and swift and visible penal action against errant promoters from Sebi. At the same time, it is wrong to create an environment that encourages small investors to believe that there are no risks and only gains. Mutual funds, unfortunately, unleashed this sort of hype and eventually became victims of investor disillusionment. There are already murmurs about the poor returns generated by equity schemes over the past year. Debt funds, too, have betrayed the trust by investing in low-quality, high-yielding paper to prop up NAVs. The response to two recent IPOs from the services sector indicates that investors know a value proposition. Both were richly priced. One flopped on listing as the scope for a high-end outlet was seen limited despite the rapid urbanization. At the same time, the premise that there is an untapped market waiting to be connected cost-effectively saw demand outstripping supply on the debut of the second stock. The conclusion is that, apart from a secure atmosphere being a basic requirement, optimism about the direction of the company going ahead is more important. If retail investors do not come into the market in droves, the fault is not because Sebi is lacking the will to enforce discipline. Confidence in the economy at large and the role of the issuer in the scheme of things are the pivots. The market is willing to pay a premium to companies that have survived and prospered even in tough times. That explains why some stocks fly high and some get grounded.

A chill in the air

The September 2015 quarter results trends confirm what was feared but also throw up some surprises

By Mohan Sule


To latch on to multi baggers, investors have to catch on trends early so as to enter a stock at modest valuations. At the macro level, inflation, deficits, trade imbalance, usage of particular goods and services and port and rail traffic among others give an idea about the state of the economy. At the micro level, expenditure undertaken for organic and inorganic expansion, mode of financing the capital and new launches reveal the optimism or pessimism of a company. The market’s perception is evident in the discounting assigned to the stock. Volumes traded, open interest in the derivatives market and volatility on the trading floor are other signals about the soundness or hollowness about the rosy picture painted by the management. Companies are in the business of making profit for their shareholders. To achieve this, they have to create trust among their consumers for their brands and products and services. This comes about by serving quality on a consistent basis at affordable prices. More is the demand-supply imbalance, higher is the scope for healthy margins. The implication is that companies have to keep on innovating to be among the first off the block. Else, they have to produce copycat products with superior technology. Automobile companies and cell phone makers have used this proposition to their advantage. The basic requirement for the premise to work is for consumers to have purchasing power to look beyond their essential requirement. Here, too, demand for workforce should be more than supply to create a situation of rising disposable income to climb up the value chain.

There is no better gauge to determine the ground-level impact of the economic environment than to examine the financial performance of companies. What the results reveal should be used by the government to re-calibrate the applications of its post-May 2014 policies. The inference from the July-September 2015 quarter is that a deficient south-west monsoon for the second consecutive year is making its adverse impact felt. The volatility in financial numbers of a large number of sectors including FMCG, automobiles, cement, paints and pesticides and makers of rural-dominant products and services confirms the rural distress. Some have managed to keep afloat with lackluster numbers, while a few others’ margins have taken a hit. Low base and price cuts have aided many. This leads to the second conclusion. The results could have been worse had not the slump in consumption balanced by falling commodity prices. The crash in crude oil prices has benefited not only oil marketing companies and refiners but also those using crude-based derivatives as raw materials and intermediates including plastic goods makers. The decline in commodity prices is a byproduct of global slowdown. The twin effects have been slump in project exports to oil-exporting countries and dumping of cheap goods. Also feeling the heat are the tech sector as clients seek better pricing and the domestic metals industry that could have otherwise bounced back quicker by the demand that is set to be generated by the Made-in-India initiative.

The opportunity presented by Digital India to penetrate the hinterland remains to be tapped by telecom services providers, who are facing the joint attack of stiffer regulations and diminishing share of the voice revenue stream. Better connectivity poses a challenge to capitalize on data, which has not deterred e-commerce properties. The diversion of traffic from brick-and-mortar retailers to digital markets have translated into better performance by logistics and courier firms, buzzing about delivering consignments. Two-wheelers and commercial vehicles, not surprisingly, are witnessing the beginning of achche din. The gradual revival of the power and road sectors has boosted freight movement. Capital goods makers, too, seem to be perking up as government investment is percolating to the grassroots. Hopefully, the increased infrastructure spending and lower interest rates should provide solace to public sector banks, continuing to be preoccupied with bad loans. The agile NBFCs, meanwhile, seem to have quickly occupied the slot of the small borrower’s preferred choice for consumer loans and so also microfinance institutions. The spurt in sanctions and disbursement by mortgage lenders catering to the mid-income group underscores the latent demand for affordable homes. Travelers are taking the bait of discounts offered by airlines and stuffing bag and baggage. The global economic gloom has not spoiled the appetite to have fun. The increase in footfalls at multiplexes, setting the cash registers jingling, proves that show business remains the opium of masses.

The last-mile challenges

A New Deal is required to tackle the ground-level problems posed by reforms

By Mohan Sule

The global economic gloom has not clouded the silver lining: the fastest-growing economy in the world. Fiscal and current account deficits are deflating largely on lower commodity prices and declining subsidies. Government investment in infrastructure is gathering pace. Interest rates are moving south. FDI is coming in fast and furious as the world is looking at India anew. Natural resources are getting auctioned. Many government departments and outfits are undertaking open bidding. PSU divestments started with a bang. The IPO market is reviving. Make in India to export to the world appears an attractive proposition with a weak rupee. Digital India is an ideal alternative to pass around infrastructure bumps. Smart Cities and Housing for All will be powerful boosters for job creation. The Jan Dhan Yojna is a smashing success in enlisting the unbanked. Mudra Bank and small finance banks are expected to fill the gap left by big banks in catering to the small borrowers. The social security schemes including pension and insurance are steps towards financial inclusion. Foreign portfolio investment outflow has slowed down as the US Federal Reserve is unlikely to increase interest rates this calendar and on second look at domestic valuations. In short, all the ingredients are in place for India to take off. Yet there is concern that despite the good intentions, the country could trip. Last-mile connectivity might pose a problem. Some of the legacy issues look insurmountable, frustrating policy makers in finding a solution. The choice is between tough decisions and letting the problem fester at the cost of the health of the economy.

Supply of coal and gas to power plants has improved and so also power generation capacity. Private sector is participating in the transmission and distribution sector. The hitch is the state electricity boards. They are unable to sell power to residential users at a cost plus basis. Cheap power is the poll plank of most political parties to win elections. Resultantly, SEBs cannot pay in full to generators and T&D companies. The situation has deteriorated to an extent that, despite adequate power, users are not getting uninterrupted supply. SEBs have turned to public sector banks to tide over the cash crunch. Their exposure comprises two-thirds of the Rs 450000-crore power sector loan portfolio of PSBs. Interest payment constitutes nearly 25% of the power cost. In 2002, a Rs 40000-crore package by the Central government mandated a deficit reduction timeframe. More than a decade later, Rs 200000 crore more were sanctioned for their restructuring, with the Central government taking on 50% of the liabilities. The remaining debt was to be converted into bonds to PSBs at less than 9% interest rate. In return, SEBs had to increase tariff. The average hike was a measly 14%. As the new Reserve Bank of India norms stipulate banks to make 15% provision for even restructured loans, any more credit from the PSBs in unlikely. Also, there is rampant corruption in SEBs. Inflating of cost is common.

The second tripping point is the telecom sector, with call drops becoming a recurring nuisance. The industry, the second largest after China by subscribers, is becoming a victim of its own success, with demand outstripping the spectrum available. There are more than five lakh towers in India, half of what are required. Services such as 3G or 4G require higher frequencies (above 2,100 MHz), which means more numbers. Metros and tier 1 cities do not have them in sufficient quantity. There is reluctance to share the infrastructure. Civic bodies do not have uniform standards for granting permission. The government has allowed trading of spectrum at a price pegged at the latest auction to tide over the shortage. Unless telecom connectivity is put on par with water and power supply, things are unlikely to improve and Digital India and Smart Cities might remain wishful thinking. The third obstacle is the health of banks. Non-performing assets do not allow them to focus on the future. Most of the bad loans are beyond repair. Unfortunately, these are to industries such as infrastructure that have to start spending to boost the economy. Capital infusion by government is a short-term solution. The Indradhanush reforms giving operational freedom will take a few years to show results. The fourth speed breaker is the conflict between MNCs and domestic players. In the power sector, most of the capital goods orders issued by PSUs have been snapped by MNCs and Chinese firms at rock-bottom prices. This plays to the advantage of the buyer but sounds the death knell for listed local players. Tackling these tough challenges means demolishing the status quo and giving India a New Deal.

Better late

Had Raghuram Rajan not done what he had to do, the central bank would have faced a crisis of confidence

By Mohan Sule

Has India’s financial markets got its version of James Bond when the Reserve Bank of India boss announced, “I am Raghuram Rajan and do what I have to”, and slashed the lending rate by 50 basis points (bps) late September? Finally, it appeared, the governor had come on board of the finance minister’s mission of aiming for growth. Investors, fed on a near zero-calorie diet by US Feral Reserve’s previous governor Ben Bernanke, however, did not appear impressed. Equities closed the day with just 0.63% gain. The clue was in plain sight: the market had discounted a benevolent money regime in spite of Rajan resisting a rate reduction for nearly a quarter since his last adventure and springing a surprise with a cut that was 25 bps more than expected. He waited for Fed chair Janet Yellen to reveal her cards (making jokers of pundits predicting her to start the cycle of rate increases from September), for the southwest monsoon to end and threats from maverick politicians to convince himself that the virtue of cautiousness could become a crisis of confidence in the central bank. That India might have been saved from tipping into recession is borne by the fact that the RBI has downgraded the growth and inflation targets for the current fiscal by 0.2% points. The downward revision indicates slump in demand going ahead despite softer rates.

Against the backdrop of the ex-US developed regions undertaking liquidity injection to boost inflation, a vital indicator of growth, the governor’s focus on controlling inflation would have been viewed indulgently if the domestic economy was sprinting. India’s projected expansion for the current year is notable considering China’s slowdown but tepid if not for the lower base of the past years. A deficient monsoon last year and moderate increase in the purchase price of crops have tamed food inflation, which contributed just 0.41% to headline inflation in April-July as against 2% a year ago. The change in the peg for the base rate to the consumer price index (with more food items) has raised the bar for policy action. WPI-based inflation dipped further and continued to be in the negative zone for the 10th straight month and the all-India general CPI inflation was nearly flat in August. The last lending rate cut of 25 bps had not pushed up inflation but was not having the desired salutary effect on manufacturing either. The cumulative output of eight core industries was down to 2.2% in April to August 2015 from 5.6% growth a year ago. Accounting for the overall CPI in August, the real rate of interest at 3.50% was too high for a listless economy. Viewed against the negative WPI inflation, it should have been near zero. The flight of foreign capital in anticipation of the hike in Fed rates in September 2015 hit a two-year high in August. Yet it is likely that the outflow will taper going ahead as a strong dollar has been largely factored by the market.

The third reason was the improvement in India’s macro picture but for the wrong reasons. The balance of payments surplus rose slightly in the June 2015 quarter from a year ago but had eased from the previous quarter. The current account deficit was down to 1.2% of GDP from 1.6% in the June 2014 quarter but had increased from 0.2% in the March 2015 quarter. Low commodity prices were improving the government’s balance sheet but not booting up industrial activity significantly. Due to higher domestic interest rates, external debt rose1.8% end June 2015 over end March 2015 as outstanding NRI deposits more than doubled from a year ago and low-cost overseas commercial borrowings increased. The volatile financial markets resulted in spurt in demand deposits in the current fiscal till early August as against a slide a year ago. The fourth factor was the government’s performance. Credit is up slightly so far in the fiscal. GDP expanded 7% in the June 2015 quarter, higher than the 6.7% growth inherited by Modi. Importantly, the uptick has come despite low inflation. Exports continue to be down but seemed to have bottomed out as the pace of the decline was the lowest in eight months in July. Fiscal deficit at 8.84% of GDP in the June 2015 quarter from 9.99% a year ago was due to the success of PSU divestment, auction of natural resources and control over subsidies. Total receipts were up 20.59% in the quarter over a year ago. Against this backdrop, the RBI could no longer pass on the task of accelerating growth to the government. The fifth reason was China’s depreciation of the yuan to spur its slowing economy. The rupee had to weaken in relation to stay competitive in international markets. The window of opportunity would be available till December, when the Fed is said to finally embark on boosting interest rates in small doses. As such, Rajan had to do what he did without much ado.

The guest list

Instead of meeting captains of industry, the prime minister should have heard from some ground-level troops to fix the economy

By Mohan Sule

The ritual of the policy makers from prime minister downwards meeting corporate bosses every time the economy goes into a tailspin is familiar and frustrating. The conclusions drawn from the few hours of interaction with the who’s who of the government are also predictable. The ministers kick the ball into the businessmen’s court. The manufacturers and financiers plead for more fiscal and monetary sops. It is puzzling why Prime Minister Narendra Modi, who rode to power promising a break from the past, should carry on with this legacy of a thoroughly discredited regime. Though there was a sprinkling of public sector presence, the gathering was dominated by big private sector players. Many of them could have been the poster boys of crony capitalism, enriching themselves by cornering lucrative commodity prospecting rights. One is allegedly involved in the coal block allotment scam and another blamed by the government of under-performing to get higher prices for the output. A banker is grappling with mounting bad loans due to interference from power brokers and so also a peer because of aggressively chasing market share. Another emerging industry czar with political ties is believed to have under-reported revenues to avoid levies. The head of a diversified conglomerate makes a toxic product as well as a food item that is of late under the scanner of the regulator.

The old guard of India Inc is known to get policies tailored to protect them from competition, out-of-turn favors and easy access to the PMO and the finance ministry. It is used to bagging licenses not for any skill set but because of the proximity to the movers and shakers in the capital. Loans were obtained without adequate collateral and risk assessment following phone calls from bureaucrats, secure in the knowledge that any execution risk will be taken care of by visiting the relevant ministers. Auctioning of natural resources, instructions to banks to give credit based on commercial viability, cracking down on makers of spurious products and directing influential visitors to the concerned officials instead of the finance or prime minister have not helped the Modi government in winning any popularity sweepstakes with Corporate India. In fact, a patriarch got miffed because his fund-raising proposal did not get any preferential treatment. Many are heard grumbling, anonymously, in the media of not getting to meet the prime minister to sound him out on troubling issues specific to their projects. After operating in such a comfort zone, no wonder industry is muttering about cheap Chinese imports and sluggish rural market. The subtle message is that the government should continue routing doles through the Mahatma Gandhi National Rural Employment Guarantee scheme and increase the minimum support price for crops to bring prosperity to the hinterland, hurt by poor monsoon, to lift sales instead of declaring that it is ready to set up factories to provide jobs to the next generation of those farmers willing to give up their land for a stake in future prosperity.

What should the prime minister have done instead? Often he has professed his belief that it is the medium- and small-scale units that drive employment in India. To test his proposition, he should have invited tier 2 and tier 3 entrepreneurs. For example, the boss of the newest private sector bank and a new-age insurer could have elaborated on the potential of financial services to marry technology and human resources. The founder of a corporate healthcare chain could have focused on the paucity of skilled workers including doctors, support staff and lab technicians. A publisher of educational tools would have been a symbol of the parallel system that is catering to thousands of students outside the mainstream. One of the MPs from the prime minister’s own party could have revealed the potential of the entertainment industry as a revenue generator as well as a magnet for employment in front and back of camera. The potential of processed food, as any of the promoters graduating from the unorganized sector to builders of brand for the domestic and export markets would have told, still remains to be tapped. A food supermarket entrepreneur would have been appropriate to note the linkages between better prices for farmers, cheaper products for consumers and training of unskilled labor. A budget hotelier would have reminded that domestic tourism, too, is a crucial contributor to the GDP. A first-generation airline owner could have dissected the reasons why a once emerging sector had gone out of favor with investors and how it is a supplier of jobs ranging from flight service to maintenance engineers. To win the war against poverty and unemployment, there is need for foot soldiers rather than generals.

Money goes round

The strength or weakness of the currency rather than government policies will determine the direction of the market

By Mohan Sule

There is broad agreement among investors that the launch pad of the missiles that torpedoed global stock markets on Black Monday 24 August and Black Tuesday a week later was based in China: a sluggish economy, overheated stock market and devaluation of the currency to remain competitive. However, the contributors responsible for plunging China into a crisis vary. Some blame the overcapacity in its manufacturing sector, a supplier to the world. Others point to the very high savings rate, resulting in a skewed growth of the economy, with investment overshadowing consumption. Whatever may be the factors that led to the meltdown of equities around the globe, some trends are visible from the fallout. The first is not to depend on one market. India’s tech sector suffered due to the slump in demand from the US, its main consumer. Exporters of metals and crude oil to China such as Russia and Brazil are facing the prospect of recession. Investors give better discounting to companies with a diversified product portfolio and user base over those who sell to a few clients and geographies. The second realization is that reliance on exports has a downside, too. The ride is smooth as long as the economies of the importing countries are healthy. The slowdown in the US and recession in many parts of the euro region translated into lower consumption of Made-in-China goods. The third fallout is the acknowledgement that while outsourcing is a great idea to retain flexibility to adapt to changing market moods, the price is importing the customer’s travails. The ripples of the credit crunch in the US post September 2008 were felt across continents. India had to offer fiscal sops on faltering consumption by the growing middle class, riding on the tech and financial services boom fueled by foreign money.

Yet for companies and countries exports signify strength, a stamp of acceptance of the quality of their products and services. The bottom lines of companies, particularly those in economies with weak currency, get an edge over peers. No country is self-reliant and even fully integrated companies have to depend on outside suppliers. The fourth lesson is despite the integration of global economies due to outsourcing and the global stock market rout stemming from China’s problems now and the US mortgage market turmoil earlier, the world is not flat. China’s woes have erupted even as the US economy is recovering and set for its first interest rate hike after the financial crisis. Emerging markets are worried about the outflow of foreign funds. The euro zone has a common currency and a common central bank setting a common monetary policy. The result should be uniformity in prosperity or despair. Germany is thriving but Iceland, Ireland and Greece went bankrupt. If a union formed to allow free flow of financial and human capital, goods and services has failed to be the model for a common market, how can a loosely interconnected global economy dotted by countries with disparate growth systems?

China has embarked on cheap money to prop up the confidence of its consumers and investors. Japan, too, began injecting liquidity even after the Fed stopped its bond-buying program. As a result, the US dollar is getting stronger and other currencies weaker in relation. As if to underscore their unique identities, their decline is not to the same degree. The extent of fall of a currency is in proportion to its economy’s dependence or lack of it on the American and Chinese markets. China had to further depreciate the yuan so as not lose its export edge to those whose currencies had tumbled steeply. The use of currency to retain preeminence leads to the fifth outcome. Monetary policies are the newest weapons in the armory of countries to stake their place in the global economy. RBI governor Raghuram Rajan has warned of currency wars as the rupee slid to the 67 level. The inescapable conclusion is liquidity will determine the direction of the market rather than fiscal policies, which are many times anticipated and discounted by the market ahead of their implementation. The hike in foreign investors’ cap in insurance to 49% was hyped as the most vital reform for India in the post-liberalization era. Subsequently, the revision in the land acquisition law and the passage of the goods and service tax amendment are being touted as the ultimate frontiers to be conquered. In the heat and dust, the market forgot how it sulked for days when increase in FDI limit in multi-brand retail, said to have the potential to open up our economy to a tsunami of foreign exchange, was shot down. Now the focus is back on Fed and RBI rate cuts. This is the sixth takeaway. The market will keep on shifting its goal posts to justify bubble valuations or pathetic discounting.

The action begins

Government v Nestle is an opportunity to shine a light on the regulation of safety standards

By Mohan Sule

The progress of the Union government's class action suit against Nestle India will be keenly watched for many reasons. The legal step will be the first of its kind since the introduction of the concept in the Companies Act, 2013. It could be a test case for similar strikes going ahead. India might soon have its own ambulance chasers, the breed of lawyers ready to spring into action by encouraging users to take on the services provider or the manufacturer responsible for any deficiency. Second is the curiosity to observe the defendant's ability to bounce back post penalty. The damage has been quantified at Rs 640crore (as against Rs 1185 crore net profit made in the year ended December 2014) in the Maggi noodle case. How the figure was arrived is not clear. In many health-related cases, the side-effects take years to manifest. Juries in the US are known to award multi-million-dollar compensation. Cigarette maker Philip Morris was directed in 2006 to pay US$10 billion to plaintiffs. The third will be to assess the impact on investments. The target is an MNC with a long presence in India. As it is India is known to be a tough market to crack. Besides red tape, users are price conscious. Patent infringement is common. Fear of harassment from multiple levels of the state machinery responsible for oversight for any perceived deviation scares off scarce capital. The procedure, therefore, comes at a delicate juncture. India is well positioned to attract investors disillusioned with China. The echoes are still reverberating of the din arising from taxing (US$ 2.5 billion) the capital gains made during the transfer of Hongkong-based Hutchison Telecommunications International's 67% stake in its telecom services joint with Essar to Vodafone's Netherlands subsidiary for US$1.2 1 billion in 2007 and the minimum alternate tax levied on foreign investors retrospectively.

Yet there is a need to display firmness to demonstrate that the Indian market cannot be taken for granted. The resolve gave birth to amendments in regulation to tax capital gains made outside India on transfer of assets in India. Providing the medium of class-action suit is an acknowledgement of the helplessness of consumers in India. The forerunner was the formation of statutory bodies to oversee various markets. The Reserve Bank of India is the banking industry's ombudsman and the Securities and Exchange Board of India of the capital markets. Sebi has of late started the practice of consent decree. Companies under investigation agree to pay a fine without admitting to wrongdoing, thereby preventing years of costly litigation. The Telecom Regulatory Authority of India, the Insurance Regulatory and Development Authority and the Central Electricity Regulatory Commission have been created to monitor niche markets. The Competition Commission of India scotches unfair trade practices. It has penalized many companies including cement makers for cartelization and rigging prices. In the US, the Department of Justice is known to have cracked down on many powerful companies including Microsoft, resulting in a settlement in July 1994, with the software maker agreeing not to tie its products to the sale of Windows.

An antitrust lawsuit blocked AT&T's proposed US $39-billion acquisition of T-Mobile that would have substantially reduced competition for mobile wireless telecommunications services across the US, resulting in higher prices, poorer quality services and fewer choices and innovative products. BP agreed to pay US$ 18.7 billion to settle federal and state claims arising from the 2010 oil spill, the biggest pollution penalty in the US. The European Union is toying on how to tame the all-pervasive Google to create a space for other search engines. An interesting inference is that many companies in legal tangle for their negligence and arrogance are leaders in their market and have enriched shareholders. Most have eventually settled with the litigants to focus on their businesses. The bottom line is that class action suits need not necessarily mean the end of the road for a company. The US Food and Drug Administration routinely blocks shipments from Indian facilities. Serious players take steps to bring their production plants in line with international standards and do not spurn the market instead. Nestle can use the opportunity to shine a light on the substandard government testing facilities in India. The Union minister for food processing has admitted that the inspector raj is resulting in rotting of food grains in warehouses. As the drama is played out in the court, the producers, consumers, the market and the government will get to know how to set right the many wrongs to tap the potential of the industry to the fullest.