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This market is less full of value, more full of growth opportunities but one has to tailor one’s investment approach on one’s understanding and risk appetite, says Vallabh Bhanshali, Chairman, Enam Group.

A company which you took public as a merchant banker today stands tall at a market cap of $100 billion. What was the feeling when you took it public and what is the feeling today?
It was an extraordinary privilege to be associated with

through its journey and even when we took the company public, we had this feeling that here was a bunch of people who really stand apart and whatever we can do for them is not enough. Like a mother feels when she sees her babies grown up — it may not be appropriate for me to say that because it is clearly the founders and the senior executives who took the company public, but that association has been a big highlight of my life.

Today when it has become a $100 billion market cap company, for me, many other aspects of the company are a lot more valuable than just the market. So while I feel great about it, the values and what it has done for the country is even more valuable. I am sure that this $100 billion will multiply. But what would be great for all of us is to see a larger impact of the work that it has done and the standard it has set.

In the boom time, Infosys was not the only IT company which went public. But after 30 years, if we count on our fingertips, the big names are the only ones which have survived whether it is TCS, Infosys, to some extent HCL Tech and Wipro. When the size of the pie was so large, why don’t we have more companies of that kind?
That question can be asked of virtually all the sectors including steel or cement. It is a question of the quality of enterprise and the quality of governance, Both are needed. Opportunity is only one part of the story and you have to be humble and hungry and must have governance or you can end up trying to eat too much and get indigestion and then you will be left out of the race.

A lot of people do not understand the difference between strategic advantage and practical advantage and that opportunities only provide a tactical opportunity to go and grab it. But to build an enterprise is a different story. It is true of all the sectors. UltraTech is one and they have 100 million tonnes plus capacity but I know the number of cement companies that went down and it is not even worth counting.

IT is a human resource company and the challenge of managing such a company is much greater than those dealing with physical assets. Therefore only a few companies anywhere in the world succeed in areas like this. Infosys not only set an example for the IT sector, but for all those who wanted to learn for all the other companies. Today should be a day for governance more than just $100 billion m-cap. Governance is the theme for me not only today but every day.

You have always insisted on the whole aspect of governance so my next follow up question is that apart from governance, Infosys also believed in the whole idea of giving esops. Founders took positions by rotation and retired and professional management took over. What did you make of their whole philosophy of Esops and professional management taking over?
In the spiritual path, there is something called moksha or jeevan mukti which is a very long journey. There are people who will think of life as a long journey and there are people who will think of it as a sprint. Unfortunately most people think of a sprint. Infosys always thought of being there for a long time and doing good to customers, to employees. They were already thinking 20-30 years ahead and started planning in advance and handing over authority even while they were around.

They have experimented with various methods of doing it and now they seem to have hit the sweet spot in the balance between professionalisation and oversight by the promoters. So you need that vision and you need the courage to experiment. Infosys has demonstrated both.

I think if you cannot share your wealth with employees, you cannot share power with employees. If you cannot share power with employees, cannot respect your employees, you cannot hope that there will be a sense of ownership that you want to see when you hand it over to them. It is very simple. That is the kind of vision Mr Murthy and his colleagues brought to the company.

Do you think we can also talk about the fact that Indian IT companies should have taken bigger bets by investing in start-ups and other aspects of technology which they shied away from? The $100 billion could have been much bigger if Indian companies had evolved their business model?
I would say that there are two themes — enterprise and governance. The enterprise of an individual is shaped also by the enterprise and the country. India has not had a culture of serious innovation. Post Infosys the atmosphere changed. Also, the world over, we have seen the generations X, Y, Z and so on where a sense of security enabled them to take greater risks. The genesis of these IT companies have been very different. They had got used to the software services rather than software products but now we are seeing that as greater security prevails in the society, greater innovation prevails in the society, post 1991, a new generation of businessmen has arrived in the country and every two, three, four years, greater risks are being taken.

I do not hold against them and I do not also expect that one person can do everything. I think they have done tremendous service to the country. If you look at it this way, the contribution of software industries to Indian exports has been the most sustainable feature.

Over the last 30 years, the country went through many crises but because of the leadership of these top companies, our exports have grown some $10-20 billion. Between IT and ITes, we are looking at $200 billion exports which is the bulk of our value added exports. This has also been extremely valuable to the company’s shareholders and the country. I have no regrets and no complaints that they did not do X, Y, Z. What they have done is fabulous.

The culture required for innovation and product creation is a very different one and requires separate companies and so on. All these companies have tried in their own way but the pressure of shareholders, the habit, the enterprise cannot change too much.

There was a time when companies were valued on the basis of enterprise value, then cash flow and now companies are being priced on future imagination. What do you make of the way companies are getting priced in the startup world? Also, what is your view on governance of companies in the startup world?
Startups have a role right from South Sea mania to Panama Canal. Society needs imagination from time to time and to get carried away. If you look at the tech bubble of 2000, something similar had happened and it crashed. Some people became very remorseful by that crash. But I for one thought that when you push the limits for the first time, a lot of imagination comes into play and then you realise one needs to be more wise or pragmatic.

This is how the whole enterprise evolves from believing too much in risk to not believing in risk at all. This is the process that is going on. People think that market share, customer control, and customer knowledge are extremely valuable, but we have seen this again and again through the ages. The 2000 tech bubble is not too far into the past. I study this all the time and that was about technology potential. Now it is the market potential that is being looked at.

Also, what are the rules for governance of such companies? This is very new to the world. But I am sure that we will evolve. Companies like Apple, Google, Microsoft and all have established what can happen when you have customer control and then because there is greed always at play, maybe people are getting too greedy but who knows? We have to enjoy this ride, be ready for crashes in some companies and learn. One has to be watchful depending upon one’s own risk appetite but I think all is well with the world.

We are staring at a market where value is making a comeback and the startup place is also looking exciting. What is the right way to view this market?
Investment is as much an outside in process as it is inside out. That means one looks at what is happening in the market and then tries to change the risk appetite or borrow and then participate, which is extremely dangerous. One has to know the circle of competence, risk appetite, investment horizon, etc.

Based on that there are people who can participate 2%, 5% in things that they understand less, so that they are not left out. But if you start doing that to a large extent, you will get into trouble. What is happening in terms of policy framework in the country, what is happening in terms of geopolitical changes, China plus one theme, technological developments, singularity and multiple innovation cycles — all are converging, making what seemed impossible, possible. That makes it a heady time.

This market is less full of value, more full of growth opportunities but one has to tailor one’s investment approach on one’s understanding and risk appetite. The markets are at their all-time high. You do not need to be a genius to understand that you have to be more cautious. I would say that investors better be cautious at this point of time because the market discounts things in advance. What is headline today maybe have already been discounted long back by the market. One should not get carried away.

Thanks

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