Forbes India 22 February 2013 (e-magazine full)

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How Smartphones
are changing our
work, our play and
the way we are


Business.
Minus the paperwork.
You live on the go, travelling light.
You want things now,
not when the courier gets there.
You’re connected, 24/7,
and you want your reading at your fingertips.


Welcome to the
I NDIA

Tablet Edition

In Association With



L et ter From The E xec ut ive Ed itor

Phone, kapda aur makaan

T

here are some numbers it
takes the mind time to come
to terms with. When this year
ends, roughly 87 million Indians will
have no access to telephones. That
said, 250 million Indians will also go
to bed, undernourished, every night.
These are the kinds of numbers that
bring to mind a story that dates back to
the mid-90s. An uncouth, garrulous man
was spotted, talking loudly and endlessly
on his cellular phone. The device was new
and those were times when it cost Rs 16 to
the minute, either to place a call or receive
one. People around gazed longingly at the
object and gaped at the kind of money the
man had. The gazing and gaping, though,
turned into mocking when the ringer on
his phone went off. He, the story goes,
was showing off his cellular phone in

what was then a hopelessly poor country.
Because there are so many people who
have spotted this man, I suspect him an
urban legend. But the apocryphal story is
a telling one of the times we live in. Driven
by a primal need to communicate and
explosive entrepreneurship, telephones,
or smartphones as they are now called,
are now more abundant in India than
food is. It has permeated our lives in
ways we thought unthinkable five years
ago. It also leaves us with no doubt that

our lives are altering dramatically. To
understand how, it is important, therefore,
to understand what forms these devices
take and how they drive our existence.
So Rohin Dharmakumar and NS
Ramnath, who work out of our offices
in Bangalore and are passionate about
technology, took it upon themselves to
inspect devices still being prototyped,
speak to people from across the world,
and research and write a series of stories
that will leave you astonished at the times
we live in. They also invited Hampus
Jakobsson and Chetan Sharma, both of
whom have worked and consulted for the
most innovative technology companies
in the world, to help us understand

the implications. Aided with lovely
illustrations by the very talented Sameer
Pawar, what lies on the pages that follow
is a clear vision of what to expect.
May I also urge you to visit www.
forbesindia.com? A lot of energies are
being invested into building a multimedia
experience that will charm you with
its variety and depth on themes often
ignored by the mainstream. Some of these
are anchored by people from reputed
institutions across the world; others
by our enormously talented team.
As always, a note on what you think
of our efforts will be appreciated.

Driven by a
primal need to
communicate
and explosive
entrepreneurship,
smartphones are
now more abundant
in India than food
-------

Warmly,

Charles Assisi
Executive Editor, Forbes India

5n0wcrash

February 22, 2013 | forbes india

5


I NDIA

Volu me 5 | Issue 4 | Febr ua r y 22 , 2013

Contents

32

The
Supersmart
Phone

Your phone is
already smart. But it
is growing smarter
and will soon take
over your life. We
tell you how

upfront
Briefing
16 Buy-Gone Era?

Declining car sales and downtrading
in some consumer segments could
mean that India’s consumption
boom is petering out

From Top: Getty Images; indiatodayimages.com

26 A Car, By Another Name
Cross badging of vehicles hasn’t
caught on in Indian markets

6

22 Cameron Delivers a
Penultimatum

British PM’s conviction about
referendum on EU exit seems
more electoral than personal

28

Grounding of the 787 raises
questions about the aircraft-maker’s
sourcing strategy

forbes india | February 22, 2013

Though the global economy

survived the Eurozone breakup
and a hard landing in China, it’s too
early to predict a bull run. Sanjoy
Bhattacharyya tells you why
30 Atoms Versus Bits
Who wins the battle between physics
and software, and where do you find
maximum innovation?

Current Events
18 Boeing’s Dream Gone Bad

20 Billionaire Bistro
Settle into the Four Seasons’ Grill
Room in New York for a peek at the
power elite

Column
24 Adventures of the Equity Market
Optimist

Ideas & Opinion
28 Beyond the Banyan Tree

NEW AGE SAGE Swami Parthasarathy teaches
you how to focus on intellect

Swami Parthasarathy’s Vedanta
is based on ancient texts and
scriptures but has found its way

into the minds of corporate
bigwigs from across the world


42

52

MONEY MAN Xander’s Sid Yog is calling it right with his realty fund

features
Cross Border
42 Right On His Money

AUTO PILOT Vivek Chand Sehgal is building an empire

56

How Sid Yog’s realty fund
Xander managed to tide over
the meltdown

56 The Share Economy
Americans are sharing much
more than their Facebook
statuses and writing a whole
new story of collaborative
consumption
63 Calling China
A group of new engineers are

gearing up to launch an open
source mobile platform to take
on Google’s Android in the East
64 Once Upon a Soda
How consulting firm
Starlight Runner helps

CARING AND SHARING Birth of a new disruptive economy in the US

filmmakers and brands keep
their stories straight
66 Shut Up, Hollywood
The stars of Smosh are hot web
celebrities and are totally fine
sticking to the internet
68 Return of the Indian
How Polaris CEO Scott Wine
is planning to rewrite an iconic
motorcycle brand’s history

Enterprise
52 Going The Distance

Motherson Sumi’s fairytale journey
from a nondescript unit to a giant
auto parts maker
Real Issue
72 Stem-Cells Therapy: The
Prognosis

The many battles within the
growing stem-cells industry:
Where are we headed?

February 22, 2013 | forbes india

Clockwise: Kamran Jebreili / AP for Forbes India; Getty Images; Vikas Khot

46 A Kinder, Gentler KKR
Wall Street’s most hostile
private equity giant wants to be
Main Street’s go-to investor in
its new avatar

7


I NDIA

Volu me 5 | I s s ue 4 | Fe br u a r y 2 2 , 2 01 3

Contents

80
Running
High

Life
Recliner
86 If a Banker was a

Writer

How Ravi Subramanian
is creating thrilling
stories out of his banking
experiences

Ankit Kumar

The La Ultra, the
cruellest run in
the world, is as
much a test of
your mind as it is
of your body

90 Jaipur Days
Colours, conversations and
controversies of the Jaipur
Literature Festival
104 Pants Perfect
High-tech office wear comes
in from the cold

90

Appraisal
97 Book: Patriots and
Partisans

Historian Ramachandra
Guha’s collection of
essays cites three basic
problems concerning
this country of a billion
Nuggets
98 Techie’s Style Sheet

A set of uber fast
wheels and a GPSenabled watch can
make your day
Cheat Sheet
100 Gifts of Love

How people in love
made gifting a grand
business
NOTES FROM JAIPUR When literature met politics

8

forbes india | February 22, 2013

101 Tip-Off & F-Index

regulars
11 Letters to the Editor
12 Exit Interview
13 Close Range
14 World Watch

102Thoughts

We value your feedback.
Write to us at:

Letters may be edited for brevity.
Read us online at www.business.in.com
Cover: Digital Imaging by Sushil Mhatre


www.forbesindia.com
Magazine

Upfront

Features

Life

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Daily Sabbatical

Multimedia

Blogs

News

Lists

/>
Must-Read Blogs
The curious case of James Bond
and Huiyuan Juice

/>
While Hollywood is courting China for
reasons not hard to fathom, Chinese
brands advertising through Hollywood
movies is an interesting trend

Our Bloggers
DAMODAR
MALL
Blogs on shopping habits,
consumer insight and mall culture

Writes on policy, politics
and economy

Prince
Mathews
Thomas

LUIS MIRANDA

Blogs on his experiences as
a private equity specialist

“Thank You Auntie”: Indian kitchens
outsource to an “auntie network”
and not to food factories

Dinesh
Narayanan

Believes the story lies
in detail.

Vishwaroopam: The story doesn’t
end here
The banning of the movie says a
lot about the uneasy relationship
between art and politics in Tamil
Nadu. Both the state’s dominant
political parties grew as a result of its
association with cinema

What this 75-yr-old’s story tells
us about discovery in India
It requires a different sensibility
to appreciate, and evaluate
scientific research

With their skills in providing processed
food solutions that are hygienic, fresh
and customised to suit individual
customer taste, these Narmadabens
can pose a formidable challenge to the

factory-based ready-to-eat segment

How to kickstart innovation in your
organisation
Game-changing innovation is hard. It is
not just the outcome of brilliant ideas,
but brilliant ideas executed brilliantly

Krispy Kreme: Converting ‘Likes’
to loves

Krispy Kreme used social media to create
a buzz for its launch in Bangalore

/>
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THE SUPERSMART
PHONE
By Rohin Dharmakumar
and NS Ramnath

CELEBRITY 100
By Deepak Ajwani and
Charles Assisi
Click Here

Click Here

Why Japanese
Companies Are
Falling Behind
The Rest Of The
World

/>
Daily Sabbatical
How to be Extremely Productive
It takes a lot more than organising your
schedule to be productive

Paradox Of Choosing Platforms
Developers and users of a smartphone
tend to buy another phone with a similar
platform, since most applications are
platform-specific

What Japanese
companies can
do to be globally
competitive

How Does Private Equity Work
in India?

Private equity experts and investors in
India describe a unique developing market
where, even with bountiful capital and few
opportunities for anything but minority
shares, the sector is profitable

The High-Growth Conundrum:
Marketing at Hyperspeed

One way in which companies lose their way,
ironically, is in strong sales

February 22, 2013 | forbes india

9


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L e t t e r s To T h e E d i t o r

readers say
ROLE MODEL

Dhoni has sparked
hopes in countless
youngsters,
especially those
from smaller
towns
--------

Refer to ‘Mahi Way’
(February 8, 2013, issue).
Dhoni has sparked hopes
in countless youngsters,
especially those from
smaller towns. He is
certainly a great example
and you never know what
precious stone we may
stumble upon. Have been
keenly following your work
for a long time and feel this
is indeed a brilliant piece.
Great job Aakash [Chopra]!

Chetan
On the Web
HEIR APPARENT

Refer to ‘In Rajini’s Shadow’
(February 8, 2013, issue).
Good Article. Definitely,
Vijay is next to Rajini
in terms of popularity
and the love that people
have for him. But, Rajini
is still not replaceable.
Though, Vijay will be the
top actor undoubtedly!
Siva
On the Web
SINGING STAR

twitter.com/Forbes_India
facebook.com/ForbesIndia
linkedin.com/groups?gid=1959962
/>
Refer to ‘She Got Rhythm’
(February 8, 2013, issue).
She [Priyanka Chopra]
is a bird. She needs to
fly. You cannot contain
or define people like her.
Super impressed with
her attitude and calibre.

Thumbs up to her spirit!
Mona
On the Web
She is not just a heroine we
love to watch on screen. She

is a leader worth emulating.
She broke the gender bias
in the film industry and
proved that a strong will
and the courage to take
risks matter. Noting else!
Sowmya Ankamreddi
On the Web
DIRECTOR’S CUT

Refer to ‘Anurag Kashyap’s
Splendid Isolation’
(February 8, 2013, issue).
I think he is a bit hatke
[different] director like
Ram Gopal Varma and has
brought about a change
in Bollywood. Anurag
has made movies that are
meaningful and exciting.
Sai Bharadwaj
On the Web
AGAINST THE TIDE

Refer to ‘Curtain Call?’
(February 8, 2013, issue).
Truer words have never
been uttered. This comes
from one of the most
talented ladies of India.
Good to see Gul [Panag]
trying her hand at writing.
Sachi Mohanty
On the Web
COURTING TROUBLE

Refer to ‘Shades of Green’
(January 25, 2013, issue).
I hope that the court acts

in favour of those it is
supposed to protect first—
the citizens. Irrespective of
the outcome, companies,
politicians, bureaucrats
and the local middlemen
will continue to make
money and poor localities
will bite the dust.
Ritesh
On the Web
MONEY MATTERS

Refer to ‘How the Rupee

Rolls’ (January 25, 2013,
issue). The sole purpose of
export is to get something
in return. Otherwise,
you are simply giving
away your assets and
impoverishing yourself.
Somehow, this never
registers with economists
who regard export as an
accomplishment by itself
and fail to recognise that
export and import are two
sides of trade. Just as a sale
will attract more customers
but cannot be a business
strategy in the long run,
with a weak currency you
are asking for less for your
products and resorting
to semantics to make it
look like an achievement,
which it is not.
Ulysses
On the Web

CORRECTIONS & CLARIFICATIONS
FEBRUARY 8, 2013, ISSUE

On page 48 – An image of actor Venkatesh was wrongly

used instead of actor Nagarjuna’s.
On page 51 – Vijender Singh’s photo was wrongly captioned
as Vijender Kumar. The errors are regretted.
February 22, 2013 | forbes india

11


Upf ront/E x it Inter v iew

There’s No Point in
Spoon-Feeding the Investor
Age: 65
Last Position: Chief financial officer, TCS
Career: Managed key functions, including
marketing, operations, human resources
Interests: Reading, travelling, golf

S MAHALINGAM tells SHISHIR PRASAD that TCS chose to
be more transparent and keep the investor community
updated rather than guiding it
Q: You spent 42 years in a firm. Such
long stints are hard to see these days.
When I joined TCS, there were just
25 consulting staff. We were a tiny
division of Tata Sons. From there,
we have become one of the most
valuable companies in the group and
in the country. I started in system
design and programming, moved to

marketing and opened offices abroad,
then set up the base in Chennai
[TCS’ largest] and in the last 10
years have been in finance. It doesn’t
look like I have stayed in one job.

Q: What are some of the key
inflection points that you recall?
The start certainly was one. The first
computer we had was an IBM 1401.
IBM stopped making that model
soon after. So when we decided to
offer IT services on the latest
technology, our clients were
using it based largely on a
belief, even though we did not
have the latest technology.
The second inflection point
was the understanding of what
it takes to scale up. When you
are hiring 50 people you need
one sort of
a system, and another sort when
you are hiring thousands. You
can’t get there by just going to
blue-chip institutions. You
need to have processes. Remember,
the customer will experience
what your frontline associate
feels. The third inflection point

was when we became a listed
company. By 2003, TCS had become
very big and we needed the listing
to create stakeholder interest.

Q: Your peers had been listed for a
while. There was pressure on you
to promise and deliver growth in a
certain way. How did you handle that?

It is right that our peers set the bar
very high. We decided to be more
transparent and tell investors the
points on which they should judge
companies. We also decided there
was no point in spoon-feeding them,
so we did not give any guidance.
We remained in touch with them
through updates: Trends, sectors
that are doing well, how TCS
is positioned. If you believe too
much in guidance, then you end
up managing your own numbers.

Q: Is the TCS founding team different
from that of other IT companies
because they did not have any share
in the enterprise, and yet created
value as if it was their own company?

There are two reasons why this could
happen. One could be greed and you
take tremendous risks, and maybe
create value. The other reason is
passion. For us, it was passion. Most
of us wanted to become big players
in the industry We weren’t focussed
so much on the short term.

To read the full interview,
visit forbesindia.com

Vikas Khot

Seturaman Mahalingam


Upf r ont/C lo se R a n ge

If You Are Buying
Resources You
Need Geologists
After successful stints at India’s leading steel firms,
Malay Mukherjee speaks to Prince Mathews Thomas
about the mistakes large companies tend to make
Q After the boom years, the global
mining and metal sectors are now
going through a doom period.
What went wrong?
The worst thing to happen to the steel

and mining sector was the boom. Some
of the experienced CEOs never thought
that a boom would last forever. All
those companies that invested between
2006 and 2008 are the ones that are
now suffering. Those who didn’t
fall for the boom are doing well.

Q Like?

Japanese steel companies didn’t get into
it. South Korean major Posco
didn’t. They are performing better
than they did in 2007-08.

Q In early January, mining major Rio Tinto
announced a record $14 billion writedown of some of its assets. How could
experienced players make such mistakes?
There are many big players who tend
to look at the mining sector from a
strategic point of view rather than the
operational. Don’t look at an asset in
terms of its value, but what happens
from the operating point of view.
I’m very surprised that many
companies don’t even do the basic due
diligence. They have financial analysts
in their mergers and acquisitions team.
That has to change. If it is resources
that you are buying then you need

to have geologists in the team.

Entrepreneurs should understand
that it is better to spend $10 million or $11
million in accessing the mine. If it is an
operating mine then you have the balance
sheet to look at. But if it’s a greenfield
[operation], then you should focus on due
diligence. If money has to be lost, it is better
lost while checking the resource rather
than after buying it, which is a disaster.

Q In the steel sector, going global

Malay Mukherjee
Age: 65
Designation: Director of Zamin
Group; owner of metals and mining
consultancy FZE
Education: IIT Kharagpur;
Masters in Mining from USSR
State Commission, Moscow
Positions Held: Head of Works,
Bhilai Steel Plant of SAIL; director
at ArcelorMittal; CEO of Essar Steel

was the favourite approach in the last
five years. Was that a mistake?

Today it is showing that companies

who remained local players are doing
better. They don’t have extreme
financial conditions or huge debts.
Korean and Japanese companies are
still very much local, at least in the
Asian region. Most of the Russian
steelmakers are not doing too badly
either, even though Severstal is
having a big problem in the US.

Q Will these setbacks change
the way strategies are set?
Mining companies have got used to big
operations. Today, for the bigger miners
in the world to get interested in an asset,
it should have at least 35 million to 40
million tonnes of reserves. But there are
many in the range of 5 million to 10 million
tonnes. This requires a different approach.
It is typical: The bigger you grow, the less
attention you give. You tend to look at just
20 percent and the rest is left on its own.
February 22, 2013 | forbes india

13


U p f r o n t / Wo r l d Wa t c h

Gun Control

Switzerland
Canada

United
States

3rd 46 57 33.7

31st 30 171 32.6

Honduras

Brazil

1st

75th

88

6.2

8

9,960

5,201

34,678

40.8
14

86th

57.4

60.6

forbes india | February 22, 2013


Is the number of gun-related deaths in a country linked to the
number of people owning firearms? It’s being debated. But such
killings do seem to be linked to income disparity

Global gun ownership rank

Finland

Guns per 100 people

Average no. of homicides
with firearms in a year

Gini co-efficient*

4th 45 24 26.9
Norway

11th
31.3
2
25

Insights
 In Honduras, 68
people out of every
100,000 are killed with
firearms, the highest in
the world.
 Gun murders per year
in India have come down
by 2/3rds since 2004.
 Norway, Switzerland
and Finland have high
gun ownership because
many people are
enrolled in mandatory
military service.
 More prosperous,
egalitarian societies
(Gini co-efficient < 35)
have fewer gun-related
deaths.

* The Gini co-efficient measures income
disparity; the lower the co-efficient, the
lesser the disparity

India

110

th

4.2 3,093 36.8

Sources:
United Nations Office of Crime and Drugs
Small Arms Survey
World Bank
Data as of 2010.

Graphic by SAMEER PAWAR
Compiled by Shravan Bhat

February 22, 2013 | forbes india

15


Upf ront/Br ief i ng

Buy-Gone Era?

Three years of high inflation and muted salary growth have taken their toll on the Indian
consumer. The first visible signs of a slump have manifested themselves in slowing car sales,
falling two-wheeler sales and slowing growth among consumer goods companies
By Samar srivastava

It’s becoming harder to sell
No. of units sold in Dec 2011

No. of units sold in Dec 2012

DV Subbarao
RBI governor

Cars

flight tickets

207,316

54.14 lakh

206,865

50.2 lakh

Karl Slym

2-Wheelers

Unsold housing
stock (sq ft)

“For passenger vehicles, the overall
consumer sentiment needs to become

positive. We expect to see positive
changes only in the second half of
the calendar year 2013.”

1,137,148

495 million

1,091,982

602 million

D. Subbarao - Danish Siddiqui / Reuters; Karl Slym / Amit Verma

“Private consumption, the mainstay
of aggregate demand, continued
to decelerate reflecting the impact
of high inflation.”

16

MD, Tata Motors

forbes india | February 22, 2013


Saugata Gupta

CK Ranganathan

“Urban markets have slowed down.
Packaged foods and premium personal
care were the first to get hit. However, we
have not seen any major downtrading.”

“So far, the effort on controlling food
price inflation is not satisfactory
and that will have a significant impact
on consumer spending.”

CEO, consumer products, Marico

6.4

Growth
in bank
loans has
slowed

6.1
4

2011-12

3.7

10.3%
2012-13

Q3

Q4

2011-12

Q1

9.4%

Q2

2012-13

Major consumer
durables
expecting low to
negative growth:
Cars, two-wheelers, refrigerators, washing machines,
air conditioners, TV

Major capital goods
expecting low to
negative growth:

Construction equipment,
machine tools, transformers, textile machinery

* Growth rate in %

AND stock market valuations may have peaked

BSE BANK NIFTY

BSE REALTY index
12708.6

BSE FMCG INDEX
2238.57

5921.89

1725.11

9919.45

4073.04

FEB 1 2012

FEB 1 2013

FEB 1 2012

FEB 1 2013

FEB 1 2012

FEB 1 2013

Saugata Gupta / Getty Images; CK Ranganathan / Raju Patil for Forbes India

Growth in consumer
spending is coming down

MD, Cavinkare

Source: SIAM, DGCA, CBRE, RBI, CSO

February 22, 2013 | forbes india

17


Upf r ont/C u r rent Event s

Boeing’s Dream Gone Bad

Boeing invested an estimated $25 billion in developing the 787—introducing radical changes
in materials and a component-sourcing strategy that was to bring efficiencies for the aircraftmaker and airlines. The grounding of the aircraft raises doubts about these decisions
By cuckoo paul

1 Critical Decision 1: Lithium-ion
The fact that lithium batteries can overheat and
ignite if improperly charged or discharged, is
well known. Yet, the batteries are lighter, more
efficient than other options like nickel-cadmium
(Ni-cad) or lead acid. They allowed the 787’s
control systems to be powered by electric motors,
compared to less efficient hydraulic systems.

2 Critical Decision 2:

Outsource Components

From Top: GettyImages; Corbis

Questions are now being raised about
Boeing’s decision to farm out design and
production work—about 70% of the 787’s
components are sourced from partners.
Tokyo stock exchange-listed battery-maker
GS Yuasa, who supplied the Li-ion batteries,
is at the centre of the investigations.

18

Who Else
Will Get
Affected?
4

A Had it been tried before?
In 2011, the US aviation regulator, FAA
(Federal Airworthiness Authority) forced
business jet maker Cessna to replace
Li-ion batteries on its new model CJ4. It
was replaced by Ni-cad. However, Cessna
plans to qualify Li-ion batteries for use
in its new aircraft still being developed.

3

What Are Boeing’s Losses?

A It may lose its lead to Airbus:
In 2013, the plane-maker said it hopes to
deliver 635 to 645 planes. If the issue is
not sorted quickly, some airlines could
start canceling orders. Boeing has orders
for 800 787s, which includes 27 planes
for Air India.

A Airbus also plans to use Li-ion
batteries in its new plane, the A350. If the
FAA orders a battery change, the grounding
of the 787 could well run into months.
Certification of new batteries and the
related electrical systems could take long.

forbes india | February 22, 2013

B So, what went wrong with the 787?
It is not the battery type, but how well
it’s monitored that’s key to safe use. On
the 787, the battery is integrated into an
electronic system designed to prevent
overcharging. In the All Nippon Airways
fire on January 16, it is still unclear if it was
the battery that failed, or the monitoring.

B It may have to take write-offs of up
to $5 billion as well as reimburse airlines

for their losses. Its factories, as well as
those of dozens of suppliers, were ramping
up to maximise production. Boeing will
have to bear these inventory costs.

B Component maker Japanese heavy
engineering companies including
Mitsubishi and Kawasaki have a huge
stake—they’ve put up massive foundries to
manufacture parts for the 787, like the wing
and the fuselage. The project is likely to add
significantly to Japan’s own ambitions as a
large jet manufacturer. Japanese carriers
JAL and ANA are big 787 customers.



Upf r ont/C u r rent Event s

Billionaire
Bistro
Settle into the Four Seasons’
Grill Room in New York for a
peek at the power elite
By STEVEN BERTONI

S

INCE 1959, the Grill Room at
the Four Seasons restaurant has

served as the place for lunch
for New York’s ruling class. “It’s like
a public club,” says co-owner Julian
Niccolini. Some regulars, like billionaire
Pete Peterson, have dined at the same
table for more than four decades. Insider
perks include bespoke meals and hasslefree house credit—one banker even
has the right to duck behind the bar to
mix his own cocktails. Want a seat at
capitalism’s Carnegie Hall? You’ll need
to make a reservation weeks in advance,
or in a pinch just belly up to the bar.
Be sure to try the iconic Bloody Mary
($15) as you watch habitués like Martha
Stewart and Stephen Schwarzman
work the room before cutting into their
Dover sole ($65). You might even spot
the commander-in-chief: With the
exception of Richard Nixon, every US
President since JF Kennedy has lunched
between the Grill’s French oak walls.

20

forbes india | February 22, 2013

MORT ZUCKERMAN
CEO, Boston Properties;
publisher

MEET THE REGULARS
Diners on this typical
Thursday included a private
equity prince, a real estate
maven, a banking boss and
one Facebook billionaire.
Recognise them?

MORTON JANKLOW
Literary agent

ROGER ALTMAN
Founder, Evercore
Partners

LARRY FINK
CEO,
BlackRock

Matt Furman for Forbes

LEONARD LAUDER
Chairman emeritus,
Estée Lauder

February 22, 2013 | forbes india

21

Oli Scarff / Getty Images

Upf r ont/C u r rent Event s

Cameron Delivers
a Penultimatum

Electoral pressure, not conviction, is behind the UK PM’s promise of EU referendum

F

orty years after joining the
European Union [the UK
joined the trade bloc in
1973], British Prime Minister David
Cameron said on January 23 that
the British wanted a few things
changed. Or they’ll leave. Maybe.
Most commentators chalked the
speech up to electioneering—election
cycles in the Western democracies
usually include conservative
party tirades against foreigners
who persist in their foreignness.
American candidates scold the

22

forbes india | February 22, 2013

By Bennett Voyles

Russians, the Germans scold the
Greeks, the French scold the British,
and the British scold Europe.
But Cameron’s speech went
beyond that ritual. On the whole,
the Tory leader sounded less like
a populist politician than a longsuffering business partner—not quite
happy with business as usual but
not ready to liquidate either. Do you
think you could try to get to the office
a little earlier? Do we really need that
receptionist? What’s this charge for?
“Clearly and quite passionately,

he favours UK membership,” says
Richard Whitman, a professor
of politics and international
relations at the University of Kent
in Canterbury and an associate
fellow at Chatham House, a London
foreign affairs think tank.
But Cameron has to manage his
party, he adds, and the members
want a range of different things:
Some would withdraw tomorrow
and try to turn the UK into a sort
of Singapore West. Others want

an EU-lite—just trade please,


hold the regs [regulations].
Britons are not alone in their
annoyance. French dairy farmers,
Spanish fishermen, and many
others don’t have much use for
Brussels either. However, English
EU opponents tend to have more
venom. Today, says Whitman,
“it’s impossible to be selected as
a member of Parliament for the
Conservative Party if you have
anything but Euro-sceptical views”.
Cameron’s promise of a
referendum on membership in twoand-a-half years is acting on an old
sentiment. The UK has always been
a ‘reluctant European’, says Iain
Begg, a research fellow at the London
School of Economics and Political
Science. “For the UK, the economic
dimension of EU membership has
nearly always been more prominent
than the political goals that were
paramount for the post-War leaders of
France and Germany, who saw peace
as the core objective,” adds Begg.

Linda Colley, a professor of British

history at Princeton University, thinks
the attitude goes back to Britain’s
unique experience in World War
II. Post-Nazi continental Europe
“could feel enthusiastic about the
European Union as a new start,
something that was going to rescue
them from deep despair and defeat
and occupation”, Colley says. But
Britain hadn’t been invaded and, in
fact, the British felt they had sort
of rescued the other countries.
As a result, “They didn’t have the
same feeling of commitment and
gratitude toward the EU project.”
Britain’s experience since the
War has also tended to enforce a
greater sense of separation, in Colley’s
view. At the beginning of the 20th
century, the British royal family was
related to most of Europe’s other
royal families. Now, they are more
or less unique. Also, Colley says,
the British elite used to speak many
more languages—Lord Palmerston,

WHAT HAPPENS
IF UK EXITS EU

It would save on subsidies, but face high export tariffs

Britain would save £8 billion
as subsidies to EU countries. UK’s
contributions to EU subsidies are
equivalent to 0.6 percent of its GDP, in
comparison its deficit is 8.3 percent of GDP.

British farmers
would lose £2.7
billion in EU
subsidies.

2.3 million people from
EU nations live in Britain and
1.7 million Britons live in EU.
If UK ‘closed its borders’, EU
would probably do the same.

Dairy exports would incur
an import tax of 55%
to reach the EU market,
with tariffs of more than
200% on some items.

4% tariff on car equipment sales to the EU.

No more influence
on EU policy decisions.

Sources:

UK Treasury - />The Economist - />The Independent - />The Guardian - />
a 19th century prime minister, spoke
five—and that familiarity tended to
bring them closer to the Continent
than they have been since the war.
Another legacy has endured,
however, and that may be adding
to its current discomforts:
Britain’s sense of itself, which
retains a whiff of the imperial.
“You can hear it in the political
language,” Colley says. “Whether
you oppose the European Union
or support it, British politicians
will say that we need to be ‘at the
heart of Europe, that we need to
lead Europe’,” Colley says. “In both
cases, it’s a slightly over-inflated
view still of the possibilities of what
Britain can now do in the world. It’s
a competent, second-ranking power
and the future will only make it more
difficult to remain that way. It’s hard
for someone to adapt to that.”
Whitman says how the
Cameron proposal plays out is
uncertain, because referendums
are always uncertain. However,
he adds, whoever is running the
government in two years will find

it difficult not to honour Cameron’s
pledge to hold a referendum.
If the UK did decide to quit the
Union, Whitman is unsure what
significance that would actually
have. On such big issues as the single
currency and the Shengen area visa
agreements, Europe has already
gone its own way, he notes. “It’s
really difficult to see areas that the
UK could opt out from that it hasn’t
already opted out from,” he adds.
But two—make that 27—can play
at the referendum game: Europe
could decide to quit the UK before
the UK decides to quit Europe. “One
also shouldn’t rule out the possibility
that Europe might leave,” Whitman
says. “The European Union has been
leaving the UK for quite some time.”
(Bennett Voyles is a freelance writer and
journalist. He lives in Paris)
February 22, 2013 | forbes india

23


Upf ront/ The Con si l ient Investor

Adventures

of the Equity
Market Optimist

Sanjoy Bhattacharyya is a
partner at Fortuna Capital

While many global economies may have averted a default here and a decline there,
the crisis is far from over. Don’t judge prematurely!
By Sanjoy Bhattacharyya

T

he temple bells are clanging
with deafening intensity
as high priests of the
Indian equity market welcome the
next great bull market! The wise
men nod their heads sagely while
talking about new highs for the
S&P 500 and the inevitable shift
from bonds to stocks in the US.
So what has led to the clamour
of the past few weeks? The US has
narrowly averted teetering on the
brink of disaster with a compromise
on the debt ceiling. In Europe, too,
good news keeps gushing forth.
Despite the pre-election farce in
Italy and the rumblings of discontent
in Madrid, bond yields in both

countries are close to a 52-week low.
With banks across Europe starting
to repay the emergency funding
they received a year ago from the
European Central Bank, investors
need no further confirmation
that the crisis is behind them.
It seems to matter little that the
UK is at a risk of a triple dip recession
and France is struggling to revive
a semblance of fiscal probity. Even
the resilient German economy
may be at risk as a result of the
disastrous electoral outcome for
Angela Merkel in Lower Saxony.
Fears of a hard landing in China
have receded as well, as indicated by
the economic data released in early
24

forbes india | February 22, 2013

January. Results in the US are well
ahead of analyst forecasts, partly
aided by excellent ‘expectations
management’ by most of the index
heavyweights. The positive earnings
surprise has been handsomely
rewarded by the markets. The S&P
500, a bellwether index, is set for

its best start in more than 15 years.
There is ample reason for cheer.
Closer home, corporate results
have been encouraging given the
backdrop of a difficult macro-econimic

UK is at a risk of a triple
dip recession and france
is struggling to revive a
semblance of fiscal probity
-------environment. Barring a few pockets
such as capital goods, infrastructure
and engineering, margins have been
exceptionally resilient thanks to
stringent cost control and disciplined
capital allocation. For the first time
since early 2011, there appears to be
light at the end of the tunnel for public
sector banks. The problems with
declining asset quality are certainly on
its way to being mended, and credit
growth should benefit as a result of
the recent easing in interest rates
and liquidity announced by the RBI.
Above all, Chidambaram’s tryst
with fiscal consolidation and attempts

to kick-start policy reform is the best
possible harbinger of a bull run. The
sharp ascent of the markets post his

re-appointment as finance minister
suggests that investors believe the
worst is over and a strong recovery
is on the cards in 2013. Even more
importantly, the market seems to
have shrugged off the election year
blues hinting at the faith they repose
in the government’s economic
steadfastness and maturity in not
falling prey to populist gimmickry.
The correlation between stocks and
other major markets has also declined,
which probably means the influence
of top-down economic risk is on the
wane. Driven by strong and persistent
net inflows from international
investors, most market mavens now
believe that ‘tail risks’ are insignificant.
The argument is that if we survived
the breakup of the Eurozone, chaos
in the Middle East, a fiscal cliff in
the US and a hard landing in China,
thanks to the heightened awareness
of leaders such as Mario Draghi and
Barack Obama, surely the scenario
in 2013 cannot get any worse!
Consequently, there is reason for
optimism and resurgent confidence
among investors across global equity
markets. Most markets are just

a hair’s breadth away from their
2008 highs with India being no
exception. Should those old highs


The former is a market leader
in metallurgical chemicals used
by foundries and is owned by the
Cookson Group in the UK. It has
an exceptional track record of
consistently high profitability,
disciplined capital allocation and
steady growth. It trades at 14 times
lower than its CY2012 [January to
December] earnings and sports a
dividend yield of just below 4 percent.
At the current price, which is just 5
percent higher than a two-year low,
Foseco offers a genuinely high margin
of safety to the conservative investor.
For many, Sundaram Finance
defines the gold standard among
non-banking finance companies.
Quite apart from the fact that it trades

at 12 times its current standalone
earnings and 2.6 times its book
[value], there is a hidden treasure
trove in terms of the value of its
housing finance, asset management

and insurance subsidiaries. All you
can do is bless the slowdown in
the commercial vehicle industry
for this incredible opportunity.
Sherlock Holmes’ insight as a
master detective—“The temptation
to form premature theories upon
insufficient data is the bane of our
profession”—must surely resonate
with experienced investors!
Disclosure: This column is neither an offer
to sell nor solicitation to buy any of the securities
mentioned herein. The author frequently invests
in the shares discussed by him.

February 22, 2013 | forbes india

corbis

be broken, the stage could be set
for a decisive move northward.
So why worry about what can
go wrong? The speed at which the
BSE Sensex climbed from 17,500 to
20,000 was not only unusual but also
perplexing, given the complete lack
of change in fundamentals. Clearly,
most investors are willing to plug
in significantly higher growth for
2013 on faith, in the absence of any

concrete evidence. As the Financial
Times pointed out on January 30,
“Shares in the Sensex now trade on
16 times earnings, in line with the
historical average. But there is still
little for investors to sink their teeth
into to be convinced that those shares
are cheap”. The truly enlightened
would dismiss this minor blemish
by pointing out that rebased in US
dollar terms, the stock market is
20 percent below where it was in
January 2008. The belief that the
Eurozone has been saved is equally
naive. Since 2008, European leaders
have hesitated till they have been
pushed to the brink by signs of an
impending market meltdown. Why
will it be any different in 2013? And
just in case it’s not, there could be
a dangerously sharp correction.
As James Montier [a value investor]
says, the best value investors have
scepticism as their default option.
Scepticism is rare given our brains
seem wired to believe rather than
question. So, the best defence is to
hunt for evidence suggesting that
the stocks we wish to own possess
a significant margin of safety to

protect us against innate optimism.
A number of truly pedigreed
companies have been felled by the
slowdown in economic activity. The
current valuation of such ‘fallen
angels’, both in relation to history
and in absolute terms, is the reason
to dig further. Two names that come
to mind are Foseco India (Rs 474)
and Sundaram Finance (Rs 480).

25