Investors are now demanding a voice

The demand has two components. The first, is that Indians should benefit from the profits raked in by multinationals (MNCs) through our market by offering shares to the Indian public. The second, is that these MNCs should not unnecessarily be forced into the arms of Indian industrialists through joint ventures, they should be allowed to go directly to the public. This way they retain full management control as long as they share the prosperity with Indian investors. In other words, scrap permissions for 100 per cent foreign ownership and forcelisting in India. Why would the MNCs list in India? Sampat’s argument is that it is in their interest to do so. India offers among the largest untapped markets in the world. Sharing their profits will put wealth and spending power in the hand of Indians, and boost the market for their products. This, they say will create enormous wealth, which will have a cascading effect through the system and boost the economy.

Sampat’s argument is that some of the big investors in the MNC offerings would be mutual funds and high eturns by these funds, will ensure that a far larger group of investors has an opportunity to share in the wealth created. He however does not take into account the limitations that will be imposed by the world trade agreement. Seductive numbers backs Mr.Sampat’s arguments. Here are some samples: * Three former blue chips – Reliance, Tata Steel and Telco together have a combined sales of Rs 23,406 crores, combined capital employed of Rs 36,519 crores and combined market capitalisation of Rs20,415 crores. As compared to this Hindustan Lever alone, with total sales of a mere Rs 7,820 crores and capital employed of Rs 2000 crores has a market capitalisation of a stupendous Rs 50,000 crores. The future of the first three companies will in fact depend on economic revival and an increased spending power of the people. * Another example: Cadbury and Nestle achieved a sales growth of 21 per cent and 12 per cent growth respectively in 1998, and a profit growth of 35 per cent and 16 per cent respectively, even while capital employed declined by 7.7 per cent and 7.6 per cent respectively. Conclusion: value creators are using capital more efficiently and needing less of it to give huge returns. Sampat and those like him say, it is cheaper to shut down industry which has no future and golden handshakes are better than keeping dead business going. They dub big chunks of Indian industry as value destroyers – and this is largely true. So far, they have voted with their feet and dumped traditional stock. Theimpact of their collective opinion is obvious in the stock prices of former blue chips, manufacturing companies, banks and financial institutions.

They are now demanding that the government too stop pampering such industries and sinking good money to bail out value destroyers who have little future. They hold the same view about several public sector monopolies of today. Their argument is that value generation and wealth creation of the new age companies will more than make up for any losses caused by the closure of some futureless monoliths. But it is here that the arguments of the group are the weakest. They are not very convincing on the aspect of concentration of wealth in the hands of the investing class and a little hazy about its cascading impact on the economy. However, the group needs to be heard. It gives an indication of which industries can hope to raise public funds in the future. Moreover, on the issue of value creators v/s value destroyers, foreign investors too are on the same side. Itis fairly clear that an increasingly bankrupt government, with a high interest burden and huge deficit will not be able to protect employment by keeping sick industry alive. The message then is simple. Government cannot decide policy simply by attending seminars and conventions organised by the Confederation of Indian Industry and other industry groups. Their priorities are different from the investing class, which will put up money for future development. It has to pay attention to the investors. Industry too is not fooling anybody with its endless debate on corporate governance other fads. Corporate governance is meaningless to investors unless it leads to value creation.

Authors e-mail address is: suchetadalal@yahoo.com