Read the full transcript of financial literacy activist Dr. Anil Lamba’s interview on Finance With Sharan podcast (FWS 79) episode titled ” The Truth About Debt: Why 99% Rich Use It & Others Fear It”, November 20, 2025.
Introduction
SHARAN HEGDE: Hey guys, welcome back to another episode of The 1% Club Show. On today’s episode I have Dr. Anil Lamba. Dr. Anil Lamba is the author of one of the most popular books of India, “Romancing the Balance Sheet.” Today he has come here with the launch of his new book, “Start Early, Finish Rich.” So Dr. Anil, thank you so much for being on the show.
DR. ANIL LAMBA: Thank you Sharan, thank you. Pleasure being here.
The Source of Financial Wisdom
SHARAN HEGDE: So I just wanted to ask you, how do you know so much about finance? You’ve been doing this for decades and decades. You know things which are not in textbooks. I can’t find these in any other courses. So you talk about things which seemingly nobody knows. And some of the largest companies of India hire you to solve their problems. You know, companies like L&T, companies like ICICI, Ultra Tech—they hire you to solve their financial problems. So how exactly do you know all of these things?
DR. ANIL LAMBA: I don’t know how to answer that question. I’m sure many others know. I’m not the only one, neither have I invented the subject. But what I do understand is, different people may read the same book but your interpretations may vary. So I think my interpretations are different from somebody else’s. Probably that’s where the difference comes in.
But financial principles are age old and I think all the credit for the knowledge has to go to the course called Chartered Accountancy. It’s such a wonderful course.
Why Businesses Fail
SHARAN HEGDE: So I still remember when I just started my own business, three months into it, I picked up your book, “Romancing the Balance Sheet.” I read it cover to cover. And then I came across a video of yours which said that 9 out of 10 businesses fail because of financial mismanagement.
DR. ANIL LAMBA: Undisputed fact. At the cost of offending my own finance community brethren, I say the least finance management happens in the finance department. By the time the finance professionals come into the picture, the good or the damage is already done.
And you know what? That’s an avoidable reason of sickness. I mean, if a company shuts down because the product is faulty, they deserve to shut down. If they shut down because they didn’t understand how important it is to sell, not only to make, but to sell, they deserve to shut down. But when everything is fine and you shut down due to financial mismanagement—and why did that happen? Because you didn’t realize it is everybody’s responsibility.
The Truth About Leverage and Debt
SHARAN HEGDE: I was watching one of your videos and you said that the companies that you would invest in are companies which have low operating leverage and high financial leverage. You know, these are the companies that you love. That’s what you mentioned in one of the videos. I don’t know if I said it correctly, number one.
DR. ANIL LAMBA: People have a wrong impression about leverages. They treat it as if leverage is a bad word. People who don’t have leverage get up and proudly sometimes say, “I’m debt free.” I don’t understand. What is there to be proud about?
Either you’re saying I’m debt free because now I’m not growing anymore. I don’t have debt. I love it. But I don’t want to buy your shares if you’re not growing anymore. And if you are growing and you say, when you say I’m debt free, you’re saying, I will not use debt, I will use equity. Equity is probably three times more expensive than debt.
So I have two golden rules. I feel if you don’t violate those rules, the more debt you take, the better you will be.
SHARAN HEGDE: Interesting.
DR. ANIL LAMBA: So problem is not with debt. Problem is with taking debt and not being able to deploy it in such a way that you earn more than the cost of debt. Or not being able to deploy in such a way that the money where you deploy will bring it back before the debt has to be paid back. If these two rules don’t get violated, debt is fantastic.
The Smart Way to Use Debt
SHARAN HEGDE: So you’re saying taking leverage is important to grow faster.
DR. ANIL LAMBA: Yes. But then sometimes people misinterpret. I am saying you want a 100 crore project. You got 100 crores in the cupboard. Don’t use that. Not at all. First put your money. But if somebody starting a 100 crore company and you have 100 crores, my suggestion is start a 300 crore company. If against your 100, you can borrow 200 more, first put yours.
Sometimes people give the right answer for the wrong reasons. They say yes, yes, I should take that. Why? So you know, things might go wrong. I may lose the money. Said, damn it. If you’re going, there are chances of you losing the money, all the more reason to put yours. You have no moral right to drift somebody else’s money.
So first put your money. It is a sign of your sincerity, your confidence in your business. So for various reasons, you got to put. But against your money, if it allows you to borrow, let’s say in the ratio of one is to one or two is to one, then take the debt also and start a bigger business.
Product vs. Service Business
SHARAN HEGDE: So then let’s evaluate businesses here for a second. Primarily there are two types of businesses. One is a product business. Other one is a service business. In a product business, let’s say I’m a manufacturing company. Then obviously I can take debt, build a very big manufacturing plant, take larger purchase orders, be okay with longer waiting periods for receiving my money because I have debt. But if it’s a service business, where I’m offering a service of human labor or whatever it is—
DR. ANIL LAMBA: First question is do you need money to grow your business? We are not saying take debt because you’re manufacturing or anything. A manufacturing company, if it has opportunity and to exploit that opportunity, you need money. Now the question is where should the money come from? Equity or debt? I’m saying debt is cheaper option.
In a service company, suppose the money is not required. Then you neither need equity nor you need debt. Question is only when you need money, what should be used? So what is the relative advantage and disadvantage of each? If I give you a textbook answer, three factors have to be taken into account.
Three Factors: Cost, Control, and Risk
DR. ANIL LAMBA: Number one, the cost factor. Number two, the control factor. And number three, the risk factor. From a cost perspective, the cheapest is debt.
From a control perspective, debt is still better. Why? Because if you want to double your investment, you put 100. Now you want to make become twice the size. You take 100 from somebody else. From being a 100% equity holder, you become 50%. You lost control. But if you take any amount of debt, you’re still 100% owner.
SHARAN HEGDE: Control is there.
DR. ANIL LAMBA: So cost factor, debt is better. From a control factor, debt is better. So from a risk factor, equity is better because debt comes with an obligation to return. So there’s a risk involved.
Understanding Cost of Capital
SHARAN HEGDE: So now Dr. Anil, let’s say I’m a business owner and I have been running business for the last two or three years now. If you had to consult me, what would be the questions that you would ask me to analyze my business to tell if it’s good or bad, if I’m doing a good job or a bad job?
DR. ANIL LAMBA: There are many, but I’ll bring them down to one or two. Number one, I want to make sure you understand your cost of capital. Trust me, you bring 100 businessmen right now, if not all, 98 would not know. Forget knowing cost of capital, they wouldn’t be able to tell you how much of the capital in that business.
Then you got to make sure that the revenue that your business generates should not only cover the cost of production, if you’re a product company, or in your case cost of making all these things, or the cost of admin, or the cost of selling, but you also cover the cost of capital. The vicious cycle is when you don’t even know your cost of capital. You don’t even know whether you’re earning enough to cover that or not.
And within the capital, the most expensive is owner’s capital and most owners think their own money is free. So when a business earns profit, so called, and everybody is getting, but the owner is not getting a desired rate of return, that’s not a sustainable situation.
Business is Run for the Owner
DR. ANIL LAMBA: I was writing in one of those Sunday musings that it’s a very fashionable statement to say a business is run for and on behalf of all the stakeholders. Who are the stakeholders? The owners, the employees, the vendors, the bankers. And I say that’s nonsense. Business is run for one stakeholder and that is the owner.
All the other stakeholders are facilitators in the process of ensuring that the owner makes money. Because when the facilitators try to fleece you, vendors try and take as much from you, employees try and take as much from you, and if only they make money and the owner doesn’t, guys, it’s a matter of time before the owner will say there’s no point continuing and then nobody will make money.
The facilitators have to understand, do everything in your power to see that the owner earns and earns how much? That high cost of capital that I told you. That is a sustainable property.
SHARAN HEGDE: No, I get the point. Because let’s say I have 10 crores and I’m working day and night on my business. Now if the profit that I’m making from that 10 crore is just let’s say 1 crore, I’m like why am I doing this business? I might as well put this—
DR. ANIL LAMBA: Or if everybody working with you is earning, you’re doing so well. Employees are getting handsome salary. Landlord is getting rent. Vendors are getting paid. Bankers are getting paid. But Mr. Sharan is earning 5, 6, 7%. You said, damn it. Did I start this business so that I can generate employment in the country? Did I start the business so these guys can make money or should I be making money?
If you are not making and everybody is making, sooner or later you’ll say let’s shut it down. Nobody will make money. So doesn’t it make sense for everybody to make sure that you make—in their own interest, not out of the goodness of the heart—so that they continue making, they got to make sure you have to earn.
But for that you got to attribute the right cost to your capital. If you yourself think my money is free then the tragic thing that happens is this business will still continue. Everybody around you will make money except you.
ROI vs. Profit Margin
DR. ANIL LAMBA: I think whichever way you look at it, unless a business can earn for the owner 30, 40, 50%, it is not worth running. But this again will raise a lot of questions. I’m not talking about profit margin. When I say business should earn 40, 50% then people misinterpret with business gives you that kind of return. Because they are misinterpret this to be a profit margin. I’m talking about ROI.
SHARAN HEGDE: Can you explain?
DR. ANIL LAMBA: I was a director in an IT peripheral company. Very large. A few thousand crore turnover. Ridiculously thin margin. Business model was when the goods were landed on the shores of India, they get released from customs. They’re loaded onto hundreds of delivery vans sent all over the country. And money collected should happen in seven days. If it took eight days, this company made a loss—that thin a margin.
SHARAN HEGDE: Wow.
DR. ANIL LAMBA: But if you complete in seven days, you could rotate 52 times in a year. Imagine just making a 1% margin. You can have a 1% profit margin and still have an ROI of 50%. If you can rotate this money 50 times in a year, I got it.
SHARAN HEGDE: So in a year let’s say I have 10 crores. And if I’m also going to make let’s say 1% profit on this 10 crore. But if I can rotate that money fast, meaning I can sell 100 times with that same money. You know, sell, make the money, buy raw material, sell raw material. Buy, sell, buy, sell.
Finance Management is Everyone’s Responsibility
DR. ANIL LAMBA: 52 times. Now I used to tell them, who’s a finance man in your company? Ridiculous to say the guys sitting in account department are the only finance guy. This clerk in the customs office is a finance guy to me because if he delays releasing the goods, it’s bad finance management. The truck driver delivering goods across the country is a finance man. A puncture in a truck is bad finance management.
We have such a narrow notion of finance management. People, first of all people, think accountancy is finance management.
SHARAN HEGDE: Interesting.
The Power of Return on Investment
DR. ANIL LAMBA: Another example, I give somebody, this friend of mine, let’s say hypothetical, not actual. He buys potatoes for 100 bucks full day. He works and sells for 101 rupees. Or he buys for 1 lakh and sells for 1 lakh 1,000. Okay, how much profit has he made?
SHARAN HEGDE: 1%.
DR. ANIL LAMBA: No, he does that every day. Okay, so 365%. Right. We think it’s a 1% margin. The same 1 lakh, he puts next day. Again. Right? Again. He said, again, he puts it right. ROI is what I’m talking about. 40, 50%. Interesting.
SHARAN HEGDE: So just like how a business makes mistakes, what have you observed that an individual makes mistakes which they don’t know that they’re making and they’ll eventually find out in the future?
Common Financial Mistakes People Make
DR. ANIL LAMBA: Because they don’t understand enough. Like many people don’t even understand the negative impact of inflation on their lives. They don’t even understand that investments have to be done in such a way that the money is growing faster than the rate of inflation because they don’t understand compound interest.
I mean, everybody knows the word, but how many of them use it to their advantage? Because they don’t understand the mechanics of stock market. And if they either they don’t invest or if they invest, they invest foolishly. And I think a foolish investor is far more dangerous because the guy never, ever invests again and then goes and dissuades 10, 20 other people that you don’t invest. You know, I made that mistake.
So there are so many things that go wrong. So unless people understand these things, you will not be able to. I mean, there are tragic cases where you save your whole lifetime and you realize the money is not going to last you 6 months post retirement, right?
Therefore, the only substitute is knowledge. Learn as much as you can about investing so that you can put your money to good use. Inculcate the habits of saving, understand even income tax. There’s a wonderful account called PPF. If you don’t have, everybody, I think should have a PPF account that gives you one of the, if you don’t want to take any risk, if you want to be absolutely safe but still get returns greater than FD, I think a PPF is a wonderful account.
And I think people whom you are addressing, whether even you may not realize what a phenomenal service that is to mankind, those who understand at that age will probably thank you 40 years from today.
Understanding Interest Rates and Inflation
SHARAN HEGDE: So I still remember what my parents used to tell me that back in their days a fixed deposit used to give 15%, 16% interest rate. Can you talk about those days where people were getting 15% interest rate on fixed deposit?
DR. ANIL LAMBA: Rate of interest doesn’t mean anything. If you had visited Mexico in the 80s, right, you would have seen the town plastered with billboards, banks advertising fixed deposit schemes offering rates of interest as high as 80%, 8-0. What does it sound high?
SHARAN HEGDE: 80% interest rate.
DR. ANIL LAMBA: But their inflation was 100%. Interest only makes sense when compared to inflation. The government has to ensure that the real rate of interest is positive and real rate of interest means the rate of interest that you get less inflation. So when India had 12, 15% interest, the inflation was 10, 12%. So that doesn’t mean anything. Got it?
SHARAN HEGDE: Got it. But today it’s a little different, right? Today FD is giving 4 to 5% post tax returns, right? And the inflation for that same people who are in the 30% income bracket is about 10%.
DR. ANIL LAMBA: So that is a negative real rate of interest. And that the government has to make sure doesn’t last long. That should happen for a, can happen for a short period of time but it cannot be sustained. Otherwise the banking system can collapse.
SHARAN HEGDE: So you’re saying right now whatever is happening in the country cannot…
DR. ANIL LAMBA: Should not happen for long. Will not happen for long.
SHARAN HEGDE: And why? What is wrong according to you right now in the bank?
DR. ANIL LAMBA: Because your real rate of interest is negative. The depositor in bank will start feeling like an idiot. He said I saved my money. My money grew by 5%, my prices have grown by 10%. Net net, I’m a loser. Correct. The banking system can collapse.
SHARAN HEGDE: Correct.
DR. ANIL LAMBA: When India pre-1991 had a rate of inflation of about 9, 9 and a half, 10%, banks used to give 12%.
SHARAN HEGDE: Great. Real rate of return was positive, 2 plus.
DR. ANIL LAMBA: Yeah. A negative growth rate for about 10 years, recessionary conditions. I had a colleague of mine who did his chartered accountancy under me, used to work for Goldman Sachs. Still works for Goldman Sachs, but was posted in Japan. He was visiting Pune and when he came to meet me, he says, now when I put money in the bank, they’re leaving service charges. They were charging you money.
So interest has to be seen in the context of inflation. Now they’ve got two tools in their arsenal. Tool number one, monetary policy. Tool number two, fiscal policy. Okay, fiscal policy controls taxes, monetary policy controls interest rates.
Now, tax, one method is you want to reduce demand. You got to make sure the citizen had less money in their pocket to spend so demand would go down so they can hike up tax rates.
Government Policy and Inflation Control
SHARAN HEGDE: So that is why the government is increasing taxes.
DR. ANIL LAMBA: No, no, no, they won’t do that. Because if you’re trying to please your vote bank and if you hike up tax rates, your inflation will come down, but your voter will be more convinced not to vote for you. So no sensible government will use that because it hurts the vote bank.
Then the next option is use the monetary policy. Then the RBI governor would be asked to, if possible, intervene. And then the RBI governor will say, okay, we have decided to hike up interest rates. Now, when you hike up interest rates, those who deposit money in the bank will earn more. Those who borrow money will pay more.
So more people deposit, less people borrow money, which was floating in the economy, goes into the banking sector. When money supply in the economy comes down, inflation comes down.
SHARAN HEGDE: No, but if the interest rates are increased, which is what probably what the RBI will want to do to control the inflation.
DR. ANIL LAMBA: If there is, yes. But the government may not want that.
SHARAN HEGDE: Why?
DR. ANIL LAMBA: Because that makes money more expensive than industries start suffering. Their growth gets stalled, so employment may suffer. So right now, the same problem Trump is having with the Fed chief, okay, he gets up and says every day this guy is not supporting me. He said, I’ll sack you. But he can’t sack him.
So that guy’s steadfast in his own approach. He says, no, I will do what the economy deserves. I will not do what you want me to do. So they’re on a complete war path. Right?
SHARAN HEGDE: So there, the Fed chief is…
DR. ANIL LAMBA: Equivalent to our governor. Yeah.
SHARAN HEGDE: He’s not required to listen to the president there.
DR. ANIL LAMBA: No, nobody is required to. Okay. But here, no, no, no. Okay, I should not name names, but let me not name the last three governors back. That gentleman refused to listen, so they did not extend his term. Then they brought another gentleman who had come from America. He listened to the government for about three months and he stopped listening. So he was given marching orders and the next guy came.
So they are always on a, if the RBI governor is conscious, there is bound to be conflict with the government.
SHARAN HEGDE: So if this, let’s say for argument’s sake, if this keeps continuing, if the inflation keeps continuing and people’s purchasing power keeps dropping, because, you know, 99% of the people in India are not good investors, they’re going to do the same old thing, which is keep cash and FDs or some money in the locker. So if that keeps continuing, let’s say for five years, six years, do you foresee that probably the middle class will start shrinking? More and more people will go below.
DR. ANIL LAMBA: Their revenue for so long. Where will the demand come from? See, in inflation, demand is greater than supply, right? For demand you need to earn enough, right? So if, how will that go on happening? If the economy is not growing? That cannot, it’s a cycle. It’ll go up, it’ll come down. It’ll go up, it’ll come down.
SHARAN HEGDE: And you’ve seen this happen many times.
DR. ANIL LAMBA: Always across the world.
SHARAN HEGDE: Okay.
DR. ANIL LAMBA: Not only in India, across the world.
Comparing India and China’s Economic Growth
SHARAN HEGDE: Interesting. So maybe now we can compare us to our neighbors. Let’s go to China. Right?
DR. ANIL LAMBA: Because I was wondering which neighborhood, our neighbor.
SHARAN HEGDE: Right, our China. So if you go back 30 years, if you compare the GDP and the economic situation of India versus China, they were probably at similar levels, right? But fast forward to today, China is probably three times, four times much richer on a GDP per capita basis compared to an average Indian. So what exactly happened there?
DR. ANIL LAMBA: More right.
SHARAN HEGDE: Five times, probably. What exactly happened over there which did not happen over here?
DR. ANIL LAMBA: China grew at the rate of 11, 12% GDP growth rate for 25 years.
SHARAN HEGDE: Talking about the GDP growth. GDP growth, 11, 12%.
DR. ANIL LAMBA: 11, 12% for 25 years. Wow. India started when we started liberalizing. India’s growth rate went up to 8, 9% and we kept it up for a few years. Had we, if we were able to maintain an 8% growth in GDP for as little as 20 years. Okay, first of all, 20 years, 8% is not little by any stretch of imagination, but I still use the word little.
Had we done it for as little as 20 years, India would have become a developed country. We were as close to it as that.
SHARAN HEGDE: You mean like right now it would have been developed?
DR. ANIL LAMBA: I’m talking about, yeah, this started in 91. Yeah. We would have become sometime back.
SHARAN HEGDE: I mean, China is technically called a…
DR. ANIL LAMBA: Developed country, but China, of course, I mean, not only developed, probably it has gone beyond that. Looks like some science fiction. So China, but then on the other hand, China can do it because it’s not a democracy. They can get things done on gunpoint. They want to develop this city into an industrial hub. They can pack everybody in trucks and move the people to another village somewhere.
SHARAN HEGDE: Oh, that happened.
DR. ANIL LAMBA: Yeah. India cannot do that. So India’s growth, when you see from the lens of we are a democracy, everything, every time you want to do something, some rights group, environmental group will come on the streets and stall it and we take all, and which is the way it should be. Despite all those things, the growth that we achieve, I think is very, very commendable.
Happiness and Economic Development
SHARAN HEGDE: Okay, but then at the bottom line, how do we know what is better? Like, is the average Indian happier or is the average Chinese person happier?
DR. ANIL LAMBA: I have no clue about the Chinese, but I think the average Indian is happier. No doubt. You would think so. I think so. And I think because I see very little similarity between, or very little, let’s say the money available with you and the happiness quotient seem to be a cross inverse relationship they have.
I see a lot of poor people far happier than the guys who are richer. Right. Those guys are stressed out. Those are always grumpy, they’re always grouchy. So one of the reasons we are happier is maybe because we have a fair share of not very rich people. Interesting.
SHARAN HEGDE: So if you look at maybe, okay, let’s compare China and US now. Right? US was a democratic and still is a democratic country. Right. And they have been, they are the major superpower of the world.
DR. ANIL LAMBA: Absolutely. Right.
SHARAN HEGDE: So, but the story of China and the story of US is very different as to how they became superpowers. Probably if you look at US, what they did was they really favored, you know, businesses to thrive. They really favored, you know, entrepreneurs to take risks. So there’s a lot of risk capital in the US. So a lot of innovation happened and a lot of, you know, people came from around the world to live in United States.
How can India become something like that? Like, do you think it’s possible for India to become like that?
DR. ANIL LAMBA: I think we are on that path.
SHARAN HEGDE: Okay.
The Era of Economic Liberalization
DR. ANIL LAMBA: Ever since we opened up our economy, we can become a melting pot like US. And now, thanks to certain policies that are happening, a reverse brain drain seems to be starting. Right.
So the more the talent that comes here and the more the, if the government continues to be responsive, it’s not an impossible dream to have. It may take several years by the time we become like America. Right. But I think the pace at which we have grown in the last few years, it changed in terms of changes. If that continues, that day is not far.
SHARAN HEGDE: Maybe because you’ve seen that change, you know, in front of your eyes. So for example, someone like me, I’m 30 right now. I only understood economics probably like seven, eight years back.
So because I understood it just recently, for me to understand or appreciate the change which has happened in six, seven years is not that significant. So can you draw some examples of change that you have observed over the last three decades which makes you confident about India?
DR. ANIL LAMBA: I think the change started with the day we began liberalizing. And we didn’t do it voluntarily. We were made to do it because we took IMF’s.
SHARAN HEGDE: Can you tell us what is liberalization?
Understanding India’s Pre-1991 Economy
DR. ANIL LAMBA: What happened? You know, before 1991, India was not an open economy. Okay, by open meaning, no foreign company could say, let’s go to India and set up shop. Impossible. Why foreign? We’re not allowed.
Forget foreign company. Even if you’re an Indian company, you want to start a new business or even if you want to expand your existing business, God knows how many licenses were required. So we were living under what is known as a license Raj.
Okay, to take you little further back. I think in the mid-70s we were not like that. Then George Fernandez had become the Industries Minister, if I’m not wrong, for India. And he said no, none of these. Coca Cola used to be in India before that. They were thrown out. All multinationals were thrown out.
SHARAN HEGDE: Okay?
DR. ANIL LAMBA: Because Coca Cola was thrown out, companies like Campa Cola and Thumbs Up were born. Otherwise they would have never counted.
Then till 1991 we were like that. You had to take a license and it was huge amount of red tape. The result was if you wanted to fly, you had one option: Air India. You want to drive a car, you had two options: Ambassador and Fiat. You wanted to invest in mutual funds, you had one option: Unit Trust of India. You want insurance, life insurance, one option: LIC. Very uncreatively, Life Insurance is Life Insurance Corporation of India.
Sort of monopoly, absolute monopoly. And the result was mediocrity.
SHARAN HEGDE: Because when there is a monopoly, there’s…
DR. ANIL LAMBA: No innovation, no competition. There is no, like if you wanted to… I live in Pune. There’s a company called Bajaj Auto. You want to buy a scooter? I’m told you had to pay a 33% booking advance for a capital goods item like a scooter. And a father used to book and son used to get delivery. Wow. Seven, eight years waiting period for a scooter.
SHARAN HEGDE: When was this?
DR. ANIL LAMBA: Till 1991.
SHARAN HEGDE: Eight years waiting period.
DR. ANIL LAMBA: Five, six, seven. One of, I mean those days you had a NRI uncle or somebody, the biggest favor you could ask him was can you send me a demand draft in dollars? Because if you book a scooter in dollar payment, you’d get it in maybe three, four years rather than eight years.
So the big demand, supply mismatch, no competition. Consequently, if somebody bought a scooter from Bajaj in the 60s or the mid-70s or the late 80s or the early 90s, there’s hardly a change in the scooter. No innovation, no improvement. Why would you? You are the apple of scooters. There’s a motivation.
1991, government opened up its doors.
SHARAN HEGDE: They finally realized that this is not…
The 1991 Economic Crisis
DR. ANIL LAMBA: They didn’t realize. IMF. We were in dire straits. You know, we used to every now and then go through a balance of payment crisis. It means if you import more than you export, you want to import, you have to pay in dollars.
SHARAN HEGDE: Correct.
DR. ANIL LAMBA: India, you want to spend, you can print rupees, but you want to import, you can’t print dollars. Only America can do that.
SHARAN HEGDE: Yeah.
DR. ANIL LAMBA: So you have to export and if your exports fall short of imports, okay, then how do you pay for it? Then of course you have to buy dollars. When you buy dollars, you sell rupees. When you sell rupees, you create a supply of rupees and a demand of dollars and rupee become weaker, demand a dollar becomes expensive, etc, etc.
Interesting. India used to have frequent balance of payment crisis. I mean there were times that we didn’t have enough money to import for a few days.
SHARAN HEGDE: Wow.
DR. ANIL LAMBA: You know, 1991, before Manmohan Singh became Finance Minister, Narasimha Rao became PM. There was a Chandrasekhar government for 10 days.
SHARAN HEGDE: Okay.
DR. ANIL LAMBA: If I’m not wrong, the Finance Minister was Yashwant Sinha. And India had such a shortage of forex that he pawned our gold with the Bank of England and took a loan. And I think one of the first acts of Manmohan Singh was, I don’t know where he got the money from, he returned and brought a gold back.
And then he did some phenomenal things which changed a lot of… I’ll tell you a story. We were going through a similar balance of payment crisis earlier on in the mid-80s when Indira Gandhi was the PM and the government had a meeting. What do we do? How do we solve this forex problem?
Now answers were also obvious that there is a huge body of NRIs all over the world. If those guys send more money than they are sending home, all our problems can be sorted out. So why aren’t they sending more money?
That answer was also obvious. You take money out of the country, you bring it back. It is called repatriation. Repatriation. Okay. And if you take it back again, it is called expatriation. Indian laws did not permit expatriation of funds.
SHARAN HEGDE: So once you bring the money in India, you can’t take it out.
The NRI Investment Challenge
DR. ANIL LAMBA: You can’t take it out. So if you are, imagine you are an NRI sitting and you want to… You don’t need to be a patriot to send money back home. Like you yourself pointed out, interest rates were 12, 13, 14%. Nowhere in the world you get that. It made commercial sense to park your money back home.
You send your money home, most welcome. Tomorrow you say, I want it back. Government said sorry, you can’t take it back. So you would think ten times before you send money.
So government realized this is a bottleneck. They came out with a beautiful brochure wooing NRI guys: come into India, although license Raj days. You know, we’ll give you single window clearance. We’ll do this, we’ll do that and we will permit expatriation.
Now this is not the time to discuss this. But one fellow who responded to this was a gentleman called Swaraj Paul. Lord Swaraj Paul who is from the House of Lords in UK.
SHARAN HEGDE: Okay.
DR. ANIL LAMBA: Runs huge industries in India. Caparo Group, APJ Group, famous name. He came to India, but a smart guy. He didn’t want to come and start industries from scratch and go through all the, you know, those days. I don’t know why I started this, those days.
SHARAN HEGDE: No, no. This is very interesting. Please continue.
The Swaraj Paul Hostile Takeover Attempt
DR. ANIL LAMBA: I mean I’ll have to go backtracking to give you back stories for that. You know, what percentage shares should a promoter hold to control a company?
SHARAN HEGDE: Ideally, I mean mathematically, 51% but otherwise…
DR. ANIL LAMBA: Real practically speaking, how much should you have? Frankly, it can go down to one day. We can do a series on case studies. You can have 10%, you can have 8%, you can have 5%.
SHARAN HEGDE: As long as whether a majority stakeholder…
DR. ANIL LAMBA: No, no, no, no. It’s a different ball game. He said let’s find out companies where promoters have small stakes. Okay. And then you go to the market and start buying the shares. And if you acquire more than this fellow stake, you, it kind of becomes a hostile takeover.
So one of the cases of hostile, he identified two companies. One was Escorts. The other was DCM.
SHARAN HEGDE: Okay.
DR. ANIL LAMBA: Escorts owned by the Nandas. And DCM then owned by the joint family of Bharat Ram Charat Ram. And if I’m not wrong, in one of the companies the promoters had 7% stake. And the other company, the promoters had 4% stake.
So Swaraj Paul came to India and told his brokers: start buying these shares. Now, you know, if you take your mind back, you are a youngster. You come into the age when there is demat. You have a passbook for your shares. Those days there was no demat.
SHARAN HEGDE: Right.
The Era of Physical Share Certificates
DR. ANIL LAMBA: Physical shares. So now if, if you hold shares of a company, let’s say there’s a company called Sharan. Let’s give you a product.
SHARAN HEGDE: One Percent Club.
DR. ANIL LAMBA: One Percent Club Limited. Okay. And let’s say I am a shareholder and I sell my shares to, I met Rachit just now, to Rachit.
SHARAN HEGDE: Yeah.
DR. ANIL LAMBA: Now One Percent Club’s owner has changed. One of the owners has changed. You should know.
SHARAN HEGDE: Yeah.
DR. ANIL LAMBA: How will you know? You have no clue. Unless Rachit and I get together and tell you.
SHARAN HEGDE: Interesting.
DR. ANIL LAMBA: So those days, physical shares. If I sell my shares to Rachit, I used to hand over the share and a transfer form where I said I have today sold 100 shares of 1% Club to Rachit and sign it. Rachit will sign. I have bought hundred shares.
Now you have my sign within your records. Why? When I bought the share that signed a form. When this comes to you for transfer, you make sure this is a genuine transfer. You compare the signature. Then you’ll remove my name and put Rachit’s name.
Now why will Rachit put his name with you? If he doesn’t, tomorrow you declare a dividend, it will go to my house. Tomorrow you give a bonus, it’ll come to me. But Rachit says last week this company gave dividend. Anil received it. This company gave a bonus also maybe last year. Track record says once in five, six years they give. That means that no benefit to be gained, at least for the near future.
And he says I didn’t hold it. I didn’t buy the shares to hold it for long. I bought it because next week, next month the price goes up, I’ll get rid of it.
Second problem those days was to send it for transfer you had to send by snail mail.
SHARAN HEGDE: Okay.
DR. ANIL LAMBA: It would go by that mail. It would reach your secretary department. It will take a long time to change. And then you send it back. Roughly three months it would take for it to come back. In that three month any selling opportunity, you could not enjoy it.
So Rachit says, I don’t intend to hold for so long. So when I sell my shares to him, I give him a share certificate and a transfer form saying I have sold hundred shares of this company to blank. And I say, if you want you put your name in it. Okay.
A little later, Rachit sells it to this guy, this guy sells it to this guy, this guy sells it to that guy. Now by the time it reaches him, he says now dividend is about to be declared. If I don’t put my name dividend go to Anil. In that blank, he’ll put his name and send it to me.
What I’m trying to say is your company’s 10 shareholders have changed. You have no clue. Companies didn’t know who their owners were.
SHARAN HEGDE: Back in the day.
DR. ANIL LAMBA: Back in the day. Swaraj Paul came to India, started buying shares and probably, I’m guessing now, probably didn’t send them for transfer till he collected more than 4% and more than 7% and must have made one big bundle and sent to them: transferred to my name.
Those guys must have got a heart attack. Where the hell did this guy come from? Such interesting, I mean those days, such fascinating things would happen. You could track these things and write stories and stories and stories about it.
SHARAN HEGDE: And then he came and did a hostile takeover.
DR. ANIL LAMBA: No, no, he failed.
SHARAN HEGDE: He failed.
The Swaraj Paul Takeover Attempt
Those guys went to court and unfortunately for him and fortunately for the promoters, said no, no, no, no. They forced the promoters to buy back the shares from Swaraj Paul. See, when you make a hostile attempt, the price starts rising because you’re creating a demand for it. The poor guys were forced to buy their own shares back from him at a premium and pay him some interest.
So they were absolutely upset. Swaraj Paul was equally upset. What the hell. I did everything as per law, how can—so both of them were disgruntled. Swaraj Paul said, “I’ll never come back to India.” And this and that came back again and again. That’s a different story. But they failed.
I got two books in my library. One written by Swaraj Paul, one by Mr. Nanda, kept next to each other. Both books have a chapter on this. Nanda talks about, you know, we entrepreneurs with our sweat and toil build these things like brick by brick and like a dacoit, these guys come. And Swaraj Paul paints a totally different picture. Government invited us. They said, “Come, India needs your help.” I went out of my way and they—very interesting.
SHARAN HEGDE: So this is what happened when the government started liberalization?
DR. ANIL LAMBA: No, this was pre. Yeah, this is pre, this is the 80s. So—
SHARAN HEGDE: So basically all of these things were happening. There was no innovation, there was monopolization of companies. And then India was in a big deficit when it came into dollars versus INR. So they had to borrow a lot from the IMF. And then from time to time—
DR. ANIL LAMBA: Yeah, IMF, yes.
SHARAN HEGDE: Then the IMF forced India to say—
DR. ANIL LAMBA: That you have—the option was we will give you assistance provided changes.
SHARAN HEGDE: And then they opened up the borders.
DR. ANIL LAMBA: Yeah.
SHARAN HEGDE: Then what happened?
DR. ANIL LAMBA: Then India started flourishing.
India’s Economic Liberalization
SHARAN HEGDE: So why did India not do this if it was that simple?
DR. ANIL LAMBA: No clue. No clue. Maybe the—why did it take political leadership? Maybe the quality of leadership. Maybe vested interest. You feel a lot of power, right? If everybody has to come pleading to you, “I need industry,” and then you get opportunity to make money. I’m guessing, I’m guessing also maybe the—
SHARAN HEGDE: Lobbying by these incumbent companies of India.
DR. ANIL LAMBA: Telling don’t open up. Even these companies, they had to expand, had to take licenses. You want to—so those were different days.
SHARAN HEGDE: So then the IMF forced India and that’s when the boom happened.
DR. ANIL LAMBA: And then we did it very intelligently. I mean it’s not that we did it because IMF is saying and we’re very upset. No, we went all out into it. And that time also there was a fair segment of population. We recognized yes, this is what we need. In fact we also wanted it. You never would listen to us, but at least you listen to IMF.
The Stock Market Boom
SHARAN HEGDE: Is that the time when the stock market of India started booming?
DR. ANIL LAMBA: Absolutely.
SHARAN HEGDE: And is that the time when most of us retail investors started investing in the stock market?
DR. ANIL LAMBA: Still not enough invest. But yes, I think it became a very exciting place. And the person to whom credit should be given for having brought it to the masses is Dhirubhai Ambani.
SHARAN HEGDE: Okay, can you explain?
DR. ANIL LAMBA: He kind of brought it out from a—it was a close club earlier on, a close club of brokers. And you know, few people who would trade and masses were not involved. After Dhirubhai Ambani made it glamorous.
SHARAN HEGDE: How did he make it glamorous?
DR. ANIL LAMBA: Several things, Dhirubhai. The way he grew, the kind of progress, a lot of PR, a lot of people used to—people who bought his shares, made a lot of money. I mean people have bought hundred, hundred shares of Reliance. That’s it. And they built houses and married their daughters those days, etc. So they swear by him.
So as a result what would happen is even the vegetable vendors, fruit sellers started applying for IPO. One day we should discuss the IPO history also, how it happened. You know initially how it would happen. And the instrument that banks came out with. Because your money would get blocked for three months. Issues used to be oversubscribed 50, 100, 500,000 times.
SHARAN HEGDE: Wow.
DR. ANIL LAMBA: So I mean imagine if a thousand times oversubscribed. Meaning one guy gets, 999 people get their money back. But the money is blocked for three, three months for all the thousand. Then the instruments came out. Don’t have to block money. Keep it in the bank. Bank will give you this document. You use that to pay. And the money will only be in cash if you get allotted.
So now so much used to be—I used to write newspaper columns those days. I found it difficult despite being a professional and full time into it, difficult to keep track of the changes that were happening. Exciting changes. Each change more exciting than the other.
The Euphoria and the Losses
SHARAN HEGDE: So my dad also told me this. That during that time, 90s and the early 2000s, even he started investing because of the euphoria. But then he lost a lot of money and then never touched stock market until I introduced him.
DR. ANIL LAMBA: That’s a statement I made some time back. You know, if you invest without fully understanding the repercussions, then that person is more dangerous. Because not only that person never invests, then you dissuade 10, 20 others. Which I think is dangerous. And therefore what have you—
SHARAN HEGDE: And did a lot of people lose money during that time?
DR. ANIL LAMBA: Phases come and go. When Harshad Mehta scandal—before Harshad Mehta scandal, market was booming. When Harshad Mehta scandal happened, market crashed. So every time it crashes, some people will lose, right? Every time it goes up, some people will make money. So that is a phase that will happen every time.
So which is why knowledge becomes so important that even when you lose, you should know why you lost. It should not be reserved. No, no. This is a bad place to be. No, it’s not a bad place to be. You should expect this to happen. Sometimes it will go up, sometimes it will come down. And discerning people can take advantage of both.
When it crashes, is a great time to get in. I mean if it doesn’t crash, when the hell will you buy? I love crashes. You know certain shares where you have FOMO for—now here’s the time I get them cheap again. So—
Hot Stocks of the Past
SHARAN HEGDE: So back in those days, what was the hot stock? So right now we talk about AI—
DR. ANIL LAMBA: ACC Cement.
SHARAN HEGDE: Cement.
DR. ANIL LAMBA: Cement.
SHARAN HEGDE: One of the best—cement was hot stock.
DR. ANIL LAMBA: Why? But had you bought—whatever the reason, but had you bought ACC then, the price it reached then I don’t think it’ll reach again in your lifetime. It touched 15,000 or something. Wow. So many shares were there. I just put out a story the other day about Mazda. Mazda Industries.
SHARAN HEGDE: Yeah, you talked about—I saw your YouTube video on that. The price went from 100 to 6 bucks to 1,500. 6 bucks to 1,500. How did that happen?
DR. ANIL LAMBA: Harshad Mehta started buying. Those days Harshad Mehta would touch anything, it would go up. So—
The Harshad Mehta Scheme
SHARAN HEGDE: But what exactly was he doing to make it go up? If you can explain his—
DR. ANIL LAMBA: He used to buy. Demand supply buy. The question was where was he getting the money? That was the question. One didn’t realize those days rumors would go around that you know it is film stars’ black money or politician money or criminals’ money. But then you realize the man had an unlimited supply of money available from the bank.
Banking sector used to raise money against BR. BR is bank receipt. Bank receipt which is equivalent to a stock certificate. I mean in a share market you sell shares. In a—in a bank you give them—you sell those securities, right? But you don’t give physical securities. Just as a stock market you buy a share, you don’t get the share immediately but the broker gives you a contract note. Correct?
Similarly, a bank doesn’t give you the security. They give you a banker’s receipt on a letterhead. So he would take these bankers’ receipts and raise money against those and which are sometimes bogus receipts. But how does it matter? I mean if I bring you this phone and say give me 10,000 rupees, I may give you a blank box. But I say Sharan, give me 10,000 bucks or give me 1 lakh rupees. I mean you’ll examine this. Is it worth 1 lakh?
But if I tell you give me today for 1 lakh and day after tomorrow I’ll buy it back for 1 lakh and 2,000. Then how does it matter to you whether it’s genuine or a bogus, so long as you trust I’ll buy it back. So he used to give those. Take the money, put it into stocks, make it multiply, come and give it back to you. You make money, I make money. Everybody’s happy.
The Current Indian Market
SHARAN HEGDE: Interesting. So now let’s come to today, the current time, the Indian market. As we know today, whoever I talk to today, when I ask about the Indian market, they say it’s overvalued. They say that the multiples don’t make sense. The valuations don’t make sense. The PE multiples don’t make sense. How do I—based on your wealth of knowledge over the last three decades of analyzing the Indian markets, what phase of the Indian market do you think we are in right now?
DR. ANIL LAMBA: Disclaimer. Not my forte. I’m not a broker. I don’t consult on stock. My forte is business finance. I don’t track these things because I take them—it’s my font. So I’m not an economist. I’m a chartered accountant.
SHARAN HEGDE: Right.
DR. ANIL LAMBA: So these are things which I just out of hobby, I read.
SHARAN HEGDE: No, but I think your understanding of the subject helps you, you know, make these kind of—
DR. ANIL LAMBA: But I must make the disclaimer. I’m not the expert expert on this.
SHARAN HEGDE: But does the current situation remind you of sometime in the past?
DR. ANIL LAMBA: I think every now and then the same situation will come. These are cycles. These are cycles. They will happen. All you need to do is—if there’s a rising phase going on, if one understands technical analysis, then when a rising phase goes on, don’t start selling. Because after you sell, it may go on rising. Let it continue, rise. Let the fall begin.
And I have felt two dips is the time to get out. When it falls, don’t start buying because falling—because after you buy, it may go on falling. Let the falling finish. When it starts rising again, two jump up. Because when it rises, it may fall again. So if it rises, falls, rises again. If two tops, successive tops are higher than each other. After a fall is the time to get in.
When it starts falling and goes up again and falls, two bottoms are below each other. Not a foolproof method, but a pretty good method too.
Financial Intelligence and Start Early, Finish Rich
SHARAN HEGDE: That is a very interesting note to end the conversation. Dr. Anil, I think we’ve gone across the board with respect to our topic. We’ve talked about macroeconomic—
DR. ANIL LAMBA: Yes.
SHARAN HEGDE: How was India before the 90s? How is India looking right now? How do you invest your money? How should a business owner look at their money? And finally, what it really takes to be financially intelligent, right? It’s not just about knowing how to invest. It’s not just about saving money. It’s not just about—okay, this is my income, this is my expenses, this is my savings.
DR. ANIL LAMBA: Correct. What we didn’t talk much about—and let me quickly give you two minutes—is the book that brought us together. Yes. Yes. Start Early, Finish Rich. Right now, this book is aimed at kids and young adults.
SHARAN HEGDE: Okay.
DR. ANIL LAMBA: One of the reasons I wrote it is because every person I meet, my clients, I always say they are injured people. They have made the mistakes, they suffered the consequences. Then they felt the need to come to somebody like me or anybody else to learn. And almost everybody has told me sometime or the other during their interaction with me, “Why wasn’t I taught this in school?”
So I have written this book so that let’s teach them young so that they don’t make these mistakes what their parents probably made. So this book I’ve divided into three, four parts. One is general financial concepts. Second is personal finance, if you want to learn to invest. And third is, I’m assuming a fair percentage of them might want to become startup founders.
SHARAN HEGDE: Absolutely.
Starting a Business: Legal Structures and Financial Fundamentals
DR. ANIL LAMBA: So how do you start a business? Everything I’ve spoken to them, I’ve not spoken down at them, I’ve spoken to them like adults only. Language use is very, very easy. Right. A lot of illustrations.
So how do you start? What is the legal structure? How do you raise your funds if you want to start a new business?
SHARAN HEGDE: Interesting.
DR. ANIL LAMBA: Having started, how will you maintain financial statements? How do you read them? You’ll have to pay taxes. So what is taxes? These are all parts of the book. So I thought let me bring that into itself.
SHARAN HEGDE: No, no, absolutely. I think this is your eighth book if I’m not wrong.
DR. ANIL LAMBA: Yes, that’s right.
SHARAN HEGDE: I think you’re a serial author who just keeps coming out with bestsellers one after the other. And I for sure, I think you—
DR. ANIL LAMBA: You didn’t bring the book, but I’m going to send it to you.
SHARAN HEGDE: Please send it to me a signed copy. I will definitely read it cover to cover as the same as I have read your most popular book, “Romancing the Balance Sheet” and yeah, thank you so much sir for coming.
DR. ANIL LAMBA: Such a pleasure, such a pleasure.
SHARAN HEGDE: I hope you had fun.
DR. ANIL LAMBA: Thoroughly enjoyed talking to you today. Thanks.
Closing Thoughts
SHARAN HEGDE: Thank you so much. Thank you guys. On that note, I hope you guys have enjoyed this conversation. I hope you guys have become a little bit smarter by listening to us talk about finance, hopefully in an entertaining and educational manner. On that note, guys, we’ll see you in the next one.
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