Writing one post on ‘why fundamental analysis is difficult?’ is a brave attempt! Very good chance that a few thousand people will call up and REFUTE (which is all right) and many many more may call in to say, there is much more to it.

Both are absolutely true.

When we got a balance sheet for Fundamental Analysis, we would start at the Board of directors (page one of most annual report). Here we would find husband, wife, sons, fixers, friends.

Very very rarely would you find an independent director. If you were looking for an eminent independent director it was almost impossible. People like S M DATTA (ex Chairman Hindustan Lever) it was impossible. Some so called ’eminent independent directors’ are a complete joke. They come completely unprepared, and like a friend said …’he opens his mouth just to eat the sandwiches’ and has an opinion only on whether sales incentive trips should be to Greece or West Indies’.

So if you are looking for an independent board, you will have to search real far and wide. Very few directors can stand up to the current management and really have an independent view. If you think mutual funds owning shares in companies is a good thing because they will have an independent view, again you are sadly mistaken. Other than Templeton – and going ahead perhaps Fidelity, very few fund houses have an independent view. If they do have an independent view, there is no clue as to how it is being exercised.

The next item that attracts your attention is the name of the STATUTORY AUDITOR. Once upon a time when people like H K Bilpodiwala or even Y H Malegam were at their peak, their names added some confidence in the analyst’s mind. Clearly remember S B Billimoria (Y H Malegam was a partner then too I guess) giving up the audit of Raymonds. It is not clear why they left (personal reasons?) but as soon as they left the company declared a bonus. (Those days the statutory auditor had to certify the free reserves). However a few small auditors too have stood up in the past, but not at too much of liberty to write about friends. In some cases the owners are friends, in most cases the CA is the friend!

will write more…


ps: when the media says ‘you should do fundamental analysis and then invest’ I am so amused…:-)


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  1. What about the investments by LIC…can it be used as one of the tool to evaluate investment decision? or even they have vested interest….asking because myself always look for Lic holdings before investing….

  2. @ Mr.Panjwani – The only reason insurance companies (PSU) are not privatised or floated in the market is THEY are the fall back bankers to shore up what ever the extant FM wants.
    Like all other top posts insurance company top positions are also auctioned in North Block, the quantum being a function of malleability and fund raising ability.
    As for Corporate Governance or Independent Directors at the annual conference of the Asian Corporate Governance Council held in India some years back , a poll (this immediately after Lehman went bust) 80% of ‘senior management’ confessed Corp Governance would be the first casualty when business turns around.

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