brier beltran: Corruption leads to decline in India's Biggest Real Estate Stock DLF ...

Corruption has become quite endemic in India over the last decade or so and it is universally recognized that the present regime in India is the most corrupt in history. However the flow of scams has not stopped. Realty is the most corrupt industrial sectors in India due to its unorganized nature and huge scope for making money through circumventing governed rules and regulations. Real Estate Companies are amongst the worst performers over the last couple of years and the biggest real estate companies have been embroiled in major scandals. Unitech which is India?s 2^nd biggest realty company was involved in the telecom scandal. DLF the biggest real estate company has been involved in a number of corruption deals as well.

Now it is again in the highlight as allegations have been raised that it gave sweetheart deals to the son-in-law of India?s ruling Gandhi family. The stock has tanked 5% as doubts were raised about its corporate governance. Note DLF had seen a similar decline when an independent equity research firm in Canada had raised concerns about the company?s poor corporate governance relating to shady related market transactions. The company has also been indicted by the monopoly regulator for fleecing customers of its top residential luxury project in Gurgaon. Realty Investing in India is always a dangerous game with real estate firms involved in all sorts of corruption scandals. Akruti City whose? shares had seen a massive rise some months ago has been implicated by SEBI for? rigging up its share price with the help of a ?stock market operator? Dangi. I would have though that these white collar crimes should be punished more stringently. Banning some entities without any jail time will lead to more and more of these stock rigging in the future.

Realty Shares fall on Corruption Concerns is a regular phenomenon

Shares of LIC Housing Finance Ltd., along with those of realty companies Hindustan Construction Co., Oberoi Realty Ltd. and DB Realty Ltd. plunged early Thursday after the companies were named in a loan scandal late Wednesday. The Central Bureau of Investigation Wednesday arrested eight people, alleging they took huge bribes to issue corporate loans. The arrested include four senior bankers at state-controlled lenders, three from a financial services firm and one from India?s largest insurance company. The CBI alleged that the loans in question were given to companies including Lavasa Corp., a unit of Hindustan Construction, Oberoi Realty and DB Realty, as well as some other listed and privately-owned companies.

IBN

Shares in DLF dropped after anti-corruption activists accused the country?s biggest property developer of improper dealings with a member of a prominent politician?s family, prompting denials from the company. The shares were down 3.8 per cent as of 9:59 am, after falling as much as 5 per cent. The benchmark BSE index declined 0.26 per cent.
Activist Arvind Kejriwal, along with colleague Prashant Bhushan, accused DLF on Friday of arranging favourable loans and real estate transactions for Robert Vadra ? the son-in-law of Sonia Gandhi, chief of ruling Congress Party. DLF denied the allegations.

Note many stocks have declined sharply in recent times due to their association with tainted businessmen and politicians. Investing in Indian stock markets remains as treacherous as ever as figuring out the equations of crony capitalism is more important than the fundamentals. Here is an earlier article about how to invest in the Indian market where management quality is a choice between Bad and Ugly

Any investor will tell you that the management quality in India is pretty bad with the choice mainly restricted between Bad and Ugly. Though there are some of the better business groups and companies like Infosys, the management quality leaves a lot to be desired. This is a reflection of the general system of the country where endemic corruption is present with politicians and bureaucrats indulging in scam a day, I think the quality of the management plays a big role in the long term returns of the stock. It is highly unlikely that the company stock will give you good returns as the management siphons off the profits and cash through various shenanigans. Management whose past behavior reeks of corruption will unlikely change its behavior in the future and might lead to catastrophic losses as well as was the case with Satyam.

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