As FASB goes about suspending mark-to-market for illiquid securities, the Indian NACAS has come up with something even better - suspending mark-to-market for forex gains and losses, when one can argue that of all the markets, the currency markets are the one which are the most liquid and the most efficient.
The vast majority of Indian companies do not report quarterly balance sheets or cash flow statements, so one can't look at the "Other comprehensive income" item on the balance sheet to figure out what exactly has happened. There is no way for anyone now to figure out what uneconomic transactions all these companies have done.
This is from ET: "The demand to suspend this rule, known in accounting circles as AS-11 , was made by the Confederation of Indian Industry (CII) on grounds that it could severely distort the earnings of many companies. It was contended that this accounting standard, designed to address normal conditions, should be suspended for the time being, as the present market conditions were not normal"
Are they telling me that the currency markets are distorted in some way, and they are in normal order only when Rupee is at Rs 40 against the dollar. This is a joke.
One day in the next 3 years, all these transactions will mature, and the companies will make cash payments, or receive less cash than projected. Suddenly, the net debt on the companies balance sheet will zoom up much beyond what analysts are projecting. And suddenly, the companies leverage ratio will go out of whack. And just as suddenly, retail investors, who wouldn't have focussed on this issue, will find that their company has gone insolvent.
It makes sense to stick with only the highest quality names in this environment like Infosys. Third tier managements like Crompton Greaves are out to screw shareholders now.
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