Sucheta Dalal :Chidambaram the Hedge Fund Manager
Sucheta Dalal

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Chidambaram, the Hedge Fund Manager  

February 23, 2010

According to the finest minds in finance, you cannot time the market. Of course, there are exceptions. George Soros is one. He can ride up when a bubble is blowing and flip over when the bubble bursts. However, the market-timers are a rare breed, and run their own billion-dollar hedge funds. To this rare breed, one should now add Palaniappan Chidambaram, legal eagle, former finance minister and currently home minister of India. In a recent trip to Mumbai to attend a momentous occasion such as the 54th Foundation Day of the All-India Management Association, he claimed to have told OP Bhatt, chairman of State Bank of India, in late 2008, “Why don’t you buy Citibank?” Apparently, he had made this suggestion thrice.

“Citibank’s shares were going at $1 a share. That is the time when we should have bought,” he announced.
This is news to us and shows an unknown side of the home minister. In late 2008, when the largest of funds were struggling for survival; when the smartest of brains were worried that the world was headed for a second Great Depression; when the most liquid and deepest markets in the world were frozen and paralysed, the then finance minister was asking the SBI chairman, not once but thrice, to buy Citibank. This is a remarkable transition for someone who once famously said: “I know Khan market. I don’t know anything about the stock market.”
Well, you can say hindsight is 20/20 (how right he was!), or you can admire the prudence of State Bank or you can wonder why Chidambaram has decided to dedicate his life to harassing tax payers and Naxalites, when we could have easily run billion-dollar hedge funds with his superb sense of timing. But beyond that, there are several issues arise from Chidambaram’s statement. India does not have a liberal banking regime. Foreigners cannot easily buy into Indian banks (ask Hong Kong Bank about its “strategic” stake in Axis). Well, for that matter, even Indians cannot easily buy into Indian banks. There are severe restrictions on ownership and voting rights. And here is the former FM suggesting that an Indian bank should buy Citibank when it was seen to be drowning in a sea of toxic assets! Indeed, can State Bank simply buy a major foreign bank even under normal circumstances? Would the prudent Reserve Bank of India have allowed it? By the way, under Chidambaram’s tenure as the FM, there were hardly any financial sector reforms. His regime will be better remembered for maddeningly complicated taxes and massive loan waivers.

Chidambaram’s suggestion to Bhatt was bold. But boldness in financial business is not necessarily prudent. After all, as the old Wall Street saying goes: “There are bold traders. There are old traders. But there are no bold, old traders.” But who can tell that to a Home Minister? — Debashis Basu

-- Sucheta Dalal