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    Companies that can harness the growth in economy and cater to local market will thrive: Aswath Damodaran

    Synopsis

    "Firms that are able to grow with the economy will show high growth in revenues, earnings."

    aswath-damodaran2ET Now
    "A lot of Indian companies have advantage which is you have a growing economy with a huge population. That gives you wind their sails "
    In an interview with ET Now, Aswath Damodaran, Professor, Stern School of Business, NYU, says Indian companies have the benefit of a large population and a growing economy and that gives them an advantage in terms of growth.

    Edited excerpts:



    In one of your recent posts six months ago, you had indicated concerns about the way the Tata Group of Companies were being run but for the first time there is a non-Parsi chairman. Chandra understands the importance of capital allocation. In a sense, he is an IT guy who knows how to run a tight and very efficient ship. Do you think capital allocation which has been a challenge for the Tata Group per se could change now for better?
    I have been very impressed by that. I have been very impressed with Chandra because I think in a sense he comes to a position of strength. When you are the person who has built up the company that accounts for 60-65% of the overall value of the group, you are going to carry a lot of weight and because of that, people have been much more willing and the family has been much more willing to give him the power to go out and make changes.

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    That is why I said there is hope. I have never been one to say family groups are wrong. You should not have family groups because family group companies have their own advantages, there is good in them and I think that the last couple of years, the Tata Group illustrated that there is hope in every family group if they can get good people up in front and let them make the big decisions rather than make decisions that reflect history or whatever the family group might have been attached to.

    You have always said that look at Indian companies which have a very strong global presence but are masters or leaders of the domestic market. Which are some of the Indian companies where you think there is going to be a strong potential and they are likely to move independently of what is happening in the world. A classic case last time when we met was Maruti so anything apart from Maruti which has come on your radar?
    A lot of Indian companies have advantage which is you have a growing economy with a huge population. That gives you wind behind yourselves, right so, even if you are an immature company. An automobile company for instance in the US, is starting off with a presumption it is a mature company because unless you are a Tesla and you are really selling into a mature market, you are not going to grow 10% a year. Indian companies have the benefit of a large population and a growing economy and that gives them an advantage in terms of growth.

    So, to the extent that Indian companies can exploit the growth in the economy, kind of hang in there, even mature Indian companies like Britannia, food companies that are able to grow with the economy are going to be able to show high growth in revenues and earnings simply because they are benefitting from the growth of the economy.

    In a sense, in this pull towards globalisation, Indian companies have sometimes forgotten that their biggest and most lucrative market is at home. I would likely use the example of Indian automobile companies where Maruti by focussing on its domestic strengths has done what Alibaba did in China, which is, we know the local market better than those outsiders, we are going to build cars that are built for the local market.

    So, those Indian companies that take care of their Indian consumers and I have discovered that many Indian companies seem to care more about their foreign consumers than they do about their domestic consumers. If you can take care of your domestic consumers, you can deliver the goods and services that they want and you can tailor them to their particular needs. Indian companies have that growth potential that growth advantage that many companies outside India do not have.

    You have always said that there is no concept of fountain of youth in any corporation’s life cycle and you have said in the past that, Indian IT companies are now like old US manufacturing companies, the prime time is behind them. But suddenly the tide is changing again, digitisation now accounts for nearly 25-30% of the total net revenue for Indian IT companies. Do you think Indian IT companies can reboot themselves or it would be very difficult for them to come back when the global technology platforms and delivery models are changing?
    I was saying that what makes you successful often ends up putting handcuffs on you. And what made these Indian IT companies successful in the nineties and the last decade was the fact that their costs were lower than their foreign competition. So all the technological skill sets were driven towards lowering cost so that they could compete in this global marketplace and they succeeded.

    The only problem is that if your advantage is a cost advantage and at some point in time as you get more prosperous, there will be other countries with even lower costs so whether it is Philippines or Nigeria where you might have English speaking software engineers who will accept a lower pay than Indian engineers and at some point in time, your cost advantages will go away.

    If I were advising Indian IT companies I would say “you have this incredibly skilled workforce but you go to change your orientation from just cost cutting and having the lowest cost to delivering more innovative products.” But that requires a mindset change, it is not going to happen overnight but if the Indian IT companies want to benefit in the next wave, they have to focus more on innovation and less on cost saving technological changes and it will happen, at least with some of these companies but it is going to be a hard climb.




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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