CALCUTTA, SEPT 18: Mere disinvestment of public sector enterprises would not bring about an optimal industry structure, managing director of McKinsey and company Rajat Gupta said today.Delivering his keynote address at the 25th national management convention here today, Gupta said simply by changing the ownership from public to private was not sufficient."Matters can become worse and transforming public monopolies to private ones is the worst hallmark of crony capitalism," he added.The McKinsey chief, in quite contrast to most of contemporary thinkers, referred that creation of the public owned industrial base was required for the country to kick-start the process of industrial independence.According to Gupta, if disinvestment was to be made more meaningful, it's challenge was to get the "fundamentals right" and not to get too much obsessed with the tactics of the deal. If this was maintained, then disinvestment could create an optimal industry structure.The McKinsey chief also had a word ortwo for the industry leaders of the country. According to him, creation of intangible assets was more important than creating tangible assets and companies should place more emphasis getting better rather than getting bigger.In this contest, Gupta pointed out that market-to-book ratio was more important and higher the ratio, higher would be the intangible value created based on expected future performance, he added.Giving figures, he said that the collective market-to-book value of the global 100 companies had doubled from 2.1 to 4.2 (note these are ratios only) and this had become the overriding factor in the overall markets.Saying that the future of corporations would be driven by their performance in the capital markets, or how much wealth it creates for shareholders. The McKinsey chief presented four variables which are important to determine this aspect.On the basis of a McKinsey study, Gupta said that a company's valuation was derived from the net present value of cash flows from existingbusiness, in addition to the option of the promoters' flexibility to change financial and ownership structure.According to him, research showed that the capital market placed an immense importance on company's ability to sustain superior performance and the markets were increasingly looking into the future.While placing an overriding importance on the perception by capital markets, the McKinsey chief viewed that corporate organisations tended to be myopic, whereas the capital markets were more visionary.Gupta also asked the industry leaders to get rid of the "big is beautiful" syndrome and called for "atomisation" of companies into slivers. According to him, gone are the days of consolidation and integration, and this was the new exciting idea which was dawning in the new business era, he added.For tapping resources, the McKinsey chief warned that corporate underperformers would find it difficult to raise funds from the global markets.Commenting on the change in the nature of capital flowsbetween 1990 and 1996, Gupta said that "official" and for long-term development purposes had dwindled from 60 per cent to only 14 per cent, while total fund flows to developing countries were approximately $ 100 billion in 1990 to $285 billion in 1996.
