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Family-owned businesses in India seem to rule the roost when it comes to market capitalisation in the top 500 companies in 2011.
Family-owned businesses have a market cap of 60 per cent in the top 500 companies (excluding PSU banks), up from 51 per cent about a decade back, says a study done by ASK Investment Managers.
This is a strong endorsement of the market confidence in the Indian entrepreneur firms, which have been significant wealth creators of late, said the study.
The five-year and 10-year compounded annual growth rate of the Indian entrepreneur firms is more than double that of the PSUs and the MNCs, says the report. This has been attributed to the fact that the family-owned businesses (FOBs) are more in sync with the local aspects of the business and are able to align the investor-promoter interest.
“Entrepreneur firms, as against PSUs and MNCs, are faster in decision making. PSUs tend to be rigid as they are overregulated, bureaucratic and could often lack speed, while MNCs are usually driven by parent company priorities and hence slow in spotting the opportunities in local markets,” said Mr Sameer Kamdar, CEO, ASK Investment Managers.
According to the study, FOBs comprise 17 per cent of the IT industry, 10 per cent of refineries, 7 per cent of automobile and 6 per cent of the telecom industry.
“The ability of entrepreneur firms in making significant compounding returns over long periods of time can be attributed to their dominant operations mostly in sunrise industries. This dominance further justifies their abilities in cost efficiencies and dynamic business models which change as per market conditions,” said Mr Sameer Kamdar, CEO, ASK Investment Managers.
However, the drawbacks of the FOBs include the issues on succession planning, capital allocation and complicated holding structures, and nepotism and corporate governance, says the report. To address this, many FOBs are now moving quickly to professionalise management by bringing in top rated talents, establishing an owner-manager framework for their top employees, adding independent board members and cleaning up their capital structures making them more transparent, added Mr Kamdar.
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