The legacy of Ratan Tata: 1991 to 2012 - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

The legacy of Ratan Tata: 1991 to 2012 

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In this issue:
» Be ready for a series of diesel price hikes
» Why are US investors shunning the bull market?
» How was 2012 for the auto industry?
» A new 'gold rush' in the US
» ...and more!

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00:00  Chart of the day
Today marks the end of an important era in the history of India's biggest conglomerate, the Tata Group. Having served as the group chairman since 1991, Ratan Tata will today step down from his position and hand over the reins to Cyrus Mistry.

When Ratan Tata took over as chairman in 1991, India was engulfed in a financial crisis. The consequent opening up of the economy in 1992 completely transformed the economic dynamics of the country. Several old business houses could not adapt to this changing wind. Under Ratan Tata, the Tata group not just survived, but rather thrived. It grew from a family-owned business house to a professionally managed global conglomerate. The unique thing about Mr Tata's legacy is that he managed to do that without undue political patronage.

We picked up the top 5 listed Tata Group companies in terms of their market capitalisation in 1991, when Mr Tata assumed the leadership position. In the chart below, we have compared their growth in market capitalisation over the 21 year period with the BSE-Sensex. It is clear from the chart that under Ratan Tata, the group has indeed outperformed the benchmark index. This does not even take into account phenomenal wealth creators such as Tata Consultancy Services and Titan Industries which were listed on the stock exchanges later on.

Data source: Business India, Ace Equity

During his 21 years of captainship, Ratan Tata brought cohesion among group companies and built a strong group identity. He also bears the credit for developing the group's global strategy as well as building the Tata brand. It is not at all surprising that the US$ 100 bn Tata Group has been named India's best-known global brand within and outside the country.

Of course, Mr Tata has his own share of mistakes. One of the major mistakes was the expensive acquisition of Corus at the height of the global commodity boom. The highly leveraged acquisition is still weighing down on Tata Steel as the European economies continue to slump. In the telecom space, the group made a late entry. It hasn't been able to make it to the list of top 5 players yet.

Of course, there are quite a few cases where Mr Tata may not have scored a perfect 10. But would his failures cancel out his successes? We definitely don't think so. Do not forget that the gentleman managed to do all that he did in India, a country where things don't go easy without greasing several palms. And more importantly, he has left behind a legacy of business acumen and integrity which cannot be quantified.

In fact, we have been conducting polls for the most trusted Indian Corporate Group over the last three years. Each time, the Tata Group has emerged as the most trusted group.

What according to you should Indian Inc learn from Mr Ratan Tata's legacy? Share your comments with us or post your views on Facebook page / Google+ page

The one New Year wish every Indian has for 2013 is lower inflation burden. Having witnessed an unprecedented rise in the cost of food, fuel and other utilities, a reprieve would be welcome. Plus it could also mean lowering of interest rates by the RBI. But it seems that is not to be! Fuel prices in particularly are to rise in the coming year.

A phased hike of Rs 10 in diesel prices followed by commensurate hike in petrol prices could ensure that inflation remains sticky. Especially because these fuels tend to have a cascading effect on food prices as well. Now with PSU oil companies sitting on staggering losses to the tune of Rs 1.67 trillion, the government has little option but to pass on the price rise to consumers. But we hope that the Union Budget of 2013 does more sensible accounting of subsidies for calculating fiscal deficit.

In the US, stock prices have nearly doubled since 2009. So technically, the market qualifies as being a bull market. However, if one looks at money being invested in the market, one is likely to get a huge shock. Rather than making an investment, individual investors are pulling out en masse. As per reports, since they started selling in April 2007, individual investors have pulled out a whopping US$ 380 bn from US stock funds. Not just that, even institutional investors have headed for the exit doors.

This behaviour is indeed strange. US investors have most of the times bought more stocks than they have sold during a downturn and a recovery. So why the digression this time around? It has mostly to do with the quality of recovery we believe. The investors seem to be totally aware of the fact that most of the recovery that has happened is US Fed led. And once the support is taken away, corporate profitability could suffer a huge fall. This is not to say that US equities are dead. But yes, as Bill Gross calls it, investors are perhaps preparing for the new normal. The new normal where profit growth and appreciation in stock prices will be more rational. And where investors will not have unreal expectations from stocks. The current phase is thus a correction phase which was a must we believe.

2012 began on an optimistic note for the Indian auto industry. As the Auto Expo kick started with a bang, auto companies displayed many forthcoming new launches. As a result of which there was a surge in footfalls. But pressures in the industry which had already begun to be felt in the latter part of 2011 surfaced once again this year as well. Slowdown in GDP growth, firm interest rates and rising fuel prices had an adverse impact on demand, thereby hurting the fortunes of the industry. Violence and riots at Maruti's Manesar plant further worsened matters.

Hence, most of the segments within the industry were hit. Especially medium and heavy commercial vehicles (MHCVs) which bore the maximum brunt. All of which compelled SIAM to lower growth forecasts for the industry. Having said that, there were some pockets of strong performances as well. And in this regard, the mantle belonged to utility vehicles (UVs) as this segment witnessed phenomenal growth in volumes during the year. Overall, what started out as a reasonably good year for the auto industry quickly turned into a whimper towards the end.

Anyone who has seen a Western Classic would know how in the 1800s, the US state of California was the centre of all attention. The popular gold rush had spurred investments in the state. The investment was particularly focused on new methods of transportation as transporting gold was of utmost importance. Now the entire US and the state of Texas in particular is seeing another gold rush. This time the rush is for the liquid gold or oil. As energy production surges on account of the shale gas findings, more and more investments are being channeled into the transportation sector. Companies are finding creative ways of transporting oil. This includes the 1900's ways like iron horses and river barges.

A spur in investment activity is always a welcome sign be it in any sector. In a country like US which has been struggling to get its investment activity back on track, these investments do come as a breath of fresh air. But the problem is history. If we take lessons from history then the gold rush also led to adverse effects on the environment. The number of ghost towns shot up once they ran out of gold and therefore lost their economic significance. Result was people simply abandoned these towns. Hopefully with better regulation and technology, this part of history would not be repeated.

In the meanwhile after opening the day on a positive note, Indian equity markets continued to trade above the dotted line. At the time of writing, the BSE-Sensex was up by 39 points (0.2%). Among the stocks leading the gains were Oil & Natural Gas Corporation Ltd and Reliance Industries Ltd. All major Asian stock markets were trading in green led by stock markets in China and Japan.

04:50  Today's Investing Mantra
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you'll do things differently." - Warren Buffett

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    Equitymaster requests your view! Post a comment on "The legacy of Ratan Tata: 1991 to 2012". Click here!

    5 Responses to "The legacy of Ratan Tata: 1991 to 2012"


    Dec 31, 2012

    Mr. Tata is truly a great man, and I have the highest regard for him. India can be really proud of such a person, and I fully trust the Tata Group for their integrity, honesty, and Corporate Social Responsibility. I pray that India can continue to have the benefit of the TATA Group as they are the only one single group who have got a decent reputation. Others may have made more, but with rather questionable means and methods.



    Dec 30, 2012

    ratan Tata has done well;Except the telecom business and radia tape story.he is a true indian and india could be proud of.


    Binodgopal Mukherjee

    Dec 29, 2012

    Strategic thinker, A ,LEADER, An Entrepreneur (Nano)An Indian with international outlook with afirm touch on our soil.
    What a resilience ! What a calculated aggressive leader,
    At the same time an humble man, modest ,outspoken
    (Remember he commented on Mukhesh Ambani's Antila).
    If JRD was visionary, he is the Architect of new ATA ORGANISATION.
    A leader and an honorable man.



    Dec 28, 2012

    planning and management does pay, he is my hero role model to follow and emulate, leave economics to him free from politics for india

    Like (1)

    Babu Philipose

    Dec 28, 2012

    He is one of the most patriotic and true Indian, who should be our next Prime Minister. If the Congress Party go to election projecting Mr. Ratan Tata, there is a possibility of them winning the election for the 3rd time consecutively.

    Like (1)
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