Bombay Burmah, Kohinoor Mills, National Rayon, Scindia Shipping, Indian Iron & Steel... stock-market darlings? That’s right; when I graduated from IIM Calcutta in 1971, these were truly among the darlings of the Indian stock market. Fast-forward to the present and see who the current favourites are: a clutch of software services companies, a couple of consumer banks and some mobile phone operators.
See the difference in the favourites, and see how India has changed? And that change is not just in stock market terms. Bombay Burmah was a plantation company and, in the 1970s, there were many such widely-admired growers of tea and coffee, for which young men of that time aspired to work. Kohinoor Mills was one of the several dozen textile mills that dominated the industrial landscape of Bombay. National Rayon was as close to being a technology company as that era could accommodate.
It is tempting to conclude that the rise and fall of companies merely mirrors the rise and fall of industries. But then the tea and coffee plantation companies falling out of favour with the stock markets could not possibly be because we have cut back from drinking tea and coffee; if anything Indians consume more tea and coffee and at higher prices than ever before. We even consume them at upscale places like Café Coffee Day, Barista and Starbucks and no longer at cheap wayside tea shops. And, at least on this logic, there is no reason for textile companies to decline — as far as I can tell, we spend more money on clothes and bed linen and bath towels, and replace them faster, than we used to.
Maybe it is that intangible called “quality of management”. Indian Iron and Steel was already a famous steel company when the founders of current stock-market darlings such ArcelorMittal and Jindal Steel were still schoolboys. Maybe the management of Indian Iron & Steel spent more time in promoting art than in running their business.
There are of course those who say that the blame for the decline of Indian Iron & Steel — and, for that matter, the decline of Bombay’s famed textile mills of which Kohinoor Mills was one — could be laid at the doorstep of the militant trade unionism of the 1970s. It is true that Indian Iron & Steel had to contend with the rise of communism in Bengal, and the Bombay textile mills had to battle Dr Datta Samant and his union. But then how does one explain that Tata Steel, which is located in approximately the same area of Eastern India as Indian Iron & Steel, battled through that era — and is still a stock-market darling?
The casual observer may notice the preponderance of IT and mobile services companies among today’s stock-market darlings and conclude that the mantra today is all about being in technology-related industries. But then, how would you explain the imposing presence of a coal miner (Coal India) and a cigarette maker (ITC), two industries that date back to the Industrial Revolution, in the list of today’s darlings?
Such paradoxes don’t seem to be restricted to India. The darlings of the United States today include oil companies like Exxon and Chevron, venerable companies like Johnson & Johnson and P&G as well as information-age companies like Amazon, Google and Facebook. I guess you could explain this by saying that between the many hours that we chat with friends online, play with wondrous iPhone apps and buy e-books, we also need to occasionally take time off to wash and bathe using products from these old-economy companies.
If you had gathered my graduating class of bright sparks at IIM Calcutta in 1971 — many of who went on to celebrated careers in industry and academia — and asked us to predict the kind of companies, or at least the kind of industries, that would be stock market darlings 25 years later, I wonder what list we would have come up with. As a hint-answer I can only tell you this: at that time, the microprocessor had not been yet been invented and consequently the PC was not even dreamed-of; Microsoft was yet to be founded, the mobile phone creator Motorola’s main product was still walkie-talkies (the kind you see in old World War II movies) and the Internet was yet to be conjured up. We would, in all probability, have conjectured better and sexier companies in the industries then in vogue — companies making tin cans (Metal Box), bread (Modern Bread), machine tools (HMT), not to mention plantation, steel and shipping companies.
For that matter, if we sat back today and imagined who the stock market darlings of the year 2035 would be, what are we likely to come up with? I suspect we will imagine more and sexier companies in the internet, financial services and biotech industries. And, hard as that is to believe, we could be dead wrong.