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BW Businessworld

Battle For Legitimacy

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I have serious reservations about “rich lists”. However, after I studied BW’s methodology for building their ‘super rich promoters’ list, and looked at the time period over which the study was done (FY14), I realised that this study is relatively hard to fudge, and gives an accurate picture of the families that dominate the stock market.

There are three specific features of the BW rich list which I find particularly interesting:

The Tata Dominance
The Tata Trust stands head and shoulders above everybody else, being almost three times as wealthy as the next highest entrant on the list — Mukesh Ambani & Family. Having studied how the Tatas function quite closely, I find this group to be a fascinating, almost unIndian, example of how to build great wealth over long periods of time through patient investing in businesses which go on to build formidable competitive advantages. When you look at the Top 50 companies by market cap in India since the Nifty was launched in 1995, you will find that there is only one conglomerate — Tata Sons — that has had three companies which have been in the index more or less throughout this period (Tata Power, Tata Steel and Tata Motors). In fact, at present, with four entries — the three firms named above, plus Tata Consultancy Services — Tata Sons beats every other Indian conglomerate hands down in terms of the extent of its presence in the Nifty.

The Presence Of ‘Enduring Greats’
At Ambit, my colleagues spend a great deal of time trying to find well-run businesses that allocate capital sensibly over long periods. Our research suggests that less than 0.5 per cent of listed companies in India fall into this select list of companies, which can be called “enduring greats”. Unsurprisingly, almost every single one of these “enduring greats” — from Sun Pharma, Asian Paints, Berger Paints, IPCA via Pidilite to Motherson Sumi — is on the BW rich list.

However, the successful names that are not on the list are also notable — HDFC, HDFC Bank, ITC, Larsen & Toubro (L&T), IDFC, ICICI Bank and Axis Bank. Basically, companies that have been founded by determined, hard-working professionals do not find a space on this rich list because of the dispersed shareholding structure of these companies. I am confident that in the decades to come this anomaly will be corrected — the driven professional will gradually start to dominate the business landscape in India.

The Presence Of ‘Crony Capitalists’
Economists have a term called “rent seeking”, which is used to describe a special type of money-making; the sort made possible by political connections. Businessmen who specialise in rent-seeking are a very visible part of India’s stock market and, hence, of this “rich list”. That being said, it is reassuring to see that they are now a minority community. When I look down the BW rich list, only 7 of the top 20 names can be defined as “crony capitalists” by most economists.

The most interesting tussle in the coming years will be between the “enduring greats” and the “crony capitalists”. Since the NDA’s election victory, share prices of the latter category of companies have handsomely outperformed on the Sensex on the expectations that the NDA will be kind towards “crony capitalists”. Leaving aside my views that such expectations are not grounded in reality, the legitimacy of wealth in India (and the utility of the BW rich list) will hinge on how this balance between “enduringly great” companies and “crony capitalists” plays out in the years ahead.  

The author is chief executive officer, Institutional Equities, Ambit Capital. The views expressed here are his own and not Ambit Capital’s

(This story was published in BW | Businessworld Issue Dated 14-07-2014)

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