Devina Mehra: Forgetting history can be costly, especially so while investing

Subscribe to enjoy similar stories. In the last year, I noticed a pattern in the stories that people were telling about their stock picks—and in bull markets, everyone has a story. Most stories were about companies supplying either goods or services to a government or a quasi-government entity, maybe for highways, railways, power, defence or something of that kind.

This was not surprising, as for the last few years, India’s economy has been running on a single engine of government expenditure. So naturally a lot of the economic activity was in this area. But I thought to myself, have people already forgotten that not so long ago, supplying to the government was considered a huge risk area? It has always been well known that the government pays the least for any product or service.

Also, it delays payments—sometimes endlessly. Just talk to any old-time company that has supplied to a state electricity board, or even to a defence entity for that matter, and find out how hard it is to get payments out of them. That is the flip side of fat order books.

As for orders for infrastructure projects, this is how it works. The order goes to the lowest bidder, which means that even on paper the margins are slim. Then there are cost and time overruns, inevitably so, but it is very difficult to get the additional money sanctioned and disbursed.

We all love the Worli-Bandra Sea Link in Mumbai, but it became a crippling blow for the company that built it for precisely this reason. Even after a project is complete, the government or authority retains a part of the money for a period of time as a guarantee that it would function as desired. Often, this is almost the entire margin on the project in the first place and promoters have to