Stock market investors are a notoriously fickle lot. So it is not surprising that the market capitalisation of firms and business groups keeps changing from time to time. Even by these yardsticks, the news that the Tata group has overtaken the combined market capitalisation of Mukesh Ambani’s group and the Anil Dhirubhai Ambani Group (ADAG) draws attention to an important recent trend in corporate India — investors value professionally-managed companies more than predominantly family-run companies. Though Ratan Tata is indubitably a hands-on promoter, his group is increasingly professionally managed. The Ambani brothers, on the other hand, can certainly boast of some fine managerial talent within their groups but no one is likely to claim that their companies are professionally managed — and certainly not to the degree the Tata group is. The current search for Ratan Tata’s successor, for instance, does not stop at his cousin Noel; in the Ambani groups, the principle of primogeniture or, at the most, regency is a given. The recent realignment in market values, thus, can squarely be considered a vote for transparency and professionalism in corporate governance.
Of course, the current rankings need some qualification. For one, the comparison between the Tata group and Mukesh Ambani’s RIL, which is now ranked second, is somewhat skewed; the former has 30-odd listed companies, RIL has two — but the group led the rankings consistently till this year. For another, this re-rating can be viewed through the prism of specific triggers: the controversies the brothers’ businesses have faced in recent months. For instance, shares of RIL, still India’s largest individual company by market capitalisation, fell 8 per cent for six straight sessions till Monday, June 20 as a result of the Comptroller and Auditor General (CAG) submitting a report last week accusing a former oil regulator of favouring the company. ADAG stocks have fared worse and have been falling since February with the result that two group companies – Reliance Communications and Reliance Infrastructure – are now out of the benchmark 30-share Sensex. ADAG no longer figures among the top ten groups by market capitalisation — last year, it ranked third.
There may, in fact, be another reason Indian family-owned groups need to take the message from the markets seriously. To a large extent, this ranking is not a reflection of the domestic retail investors’ view but of global investors’. Indeed, given that retail investors have been all but absent from the market since 2008, it is the foreign institutional investors (FIIs) and domestic institutions that have been driving the Indian markets. FIIs have traditionally favoured professionally-managed firms and have always looked askance at Indian family-owned companies. This is another reason the market’s view should not be taken as the view of Indian investors. After all the late Dhirubhai Ambani built an enduring relationship with ordinary investors who reposed trust in him and flocked in their thousands to company annual general meetings. While a new generation of investors, and certainly overseas ones, may exhibit a preference for professionally-run and widely-held companies, family-owned Indian companies have their share of the faithful. The challenge before them is to retain the trust of the faithful with good corporate governance.
