Table Of ContentINDIA
An Investor’s Guide to the Next
Economic Superpower
INDIA
An Investor’s Guide to the Next
Economic Superpower
Aaron Chaze
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CONTENTS
Acknowledgements ix
Introduction xi
Section 1: The Investment Canvas 1
Chapter 1: What is driving the surge of opportunity in India
and the opportunity for investors? 3
Chapter 2: The intellectual structure and framework of the
Indian economy: a historical and contemporary
perspective 31
Chapter 3: Change catalysts: cost of capital, corporate
governance and the emergence of value 41
Chapter 4: The landscape of political reform and diminishing
risk 49
Section 2: A Guide to Wealth Creation in India 61
Introduction: Investing in India: a brief introduction 63
Chapter 5: Privatization: a capital question 71
Chapter 6: The old world: commodities and the making
of Indian blue chips 83
Chapter 7: The new world: fruits of liberalization 113
Chapter 8: The future world: opportunity unbound 175
vi CONTENT S
Section 3: Opportunities and Threats 213
Chapter 9: India and its approach to energy security 215
Chapter 10: India and China: creating a sustainable
advantage 223
Chapter 11: A compass for the future 237
Bibliography 245
Appendix 249
RoCE Ranking 250
Industry Aggregates 260
Industry Averages 297
Market Capitalization 298
Index 317
For Sanaya and Sanath
ACKNOWLEDGEMENTS
The book is a culmination of years of observation and study in India
of the investment opportunities. Several factors and people have
contributed to my thinking on the Indian investment scene and the
potential it holds for all Indian and global investors and, as a result,
have been indirect contributors to this book.
Its one thing to conceptualize a book and another thing to get
it done in a very short time frame, with all the attendant pressures
of work and family commitments, and this could not have been
achieved through my efforts alone. This book therefore is also a tes-
timony to the strong and unquestioning support of my family, espe-
cially from Ferzana, my wife, who though very accomplished in her
own right has made numerous sacrifices over the years that I may be
able to pursue my dreams. I have learnt from her example that it is
important to do what is right and not what is convenient. My grati-
tude to her knows no bounds, as it does to my father Thomas Chaze
who introduced me to the world of equities. My sister Orlova Chaze
too has been an outstanding source of support and encouragement.
It is also a testimony to the support I enjoyed from my closest
friends at a time when I really needed them. Raju Vasantraj, over
the years has been a guiding light; pushing me into believing that I
can excel, and Shishir Asthana, who no matter what the pressure on
his time was always around. Urmik Chhaya, an expert on the Indian
building materials, power and capital goods sectors endeavored to
read the relevant sections of the book and gave me very useful feed-
back. Deepak Tanwar and Anurag Khetarpal unhesitatingly shared
the fruits of their research with me. Sunder Subramaniam helped
considerably with the corporate databases.
x INDIA: AN INVESTOR’S GUIDE TO THE NEXT ECONOMIC SUPERPOWER
I have benefited from the guidance and wisdom of several indi-
viduals both when I lived and worked in India and subsequently in
Canada. My mentor and coach in the equities business was Rajas-
hekar Iyer, who is widely regarded as one of the original practition-
ers of the art of value investing in India. I have also benefited from
observing the investment thought processes of other gifted prac-
titioners, notably Deepak Agrawal of Impetus Advisors and Ketan
Sheth of Way2Wealth Securities. I am also deeply grateful to the
friendship and counsel of Jawahir Mulraj, one of India’s longest run-
ning financial columnists, to Keya Sarkar, and to Manas Chakravarty,
a self-anointed “super skeptic”, whose sometimes caustic musings
in newspaper columns have become staple for innumerable readers
over the years.
I also wonder at the remarkable sequence of events that brought
me and kept me in touch with Ernest McCrary, editor and publisher,
special projects with Institutional Investor magazine, now a very dear
friend, and Tom Leander, Editor in Chief, CFO Asia, who was instru-
mental in helping take this book forward, as was Steve Schwartz of
Walek & Associates.
In Canada I have had the good fortune to benefit from the wise
counsel and support and encouragement of a cross-section of very
distinguished and accomplished individuals. Dr Jagdeep Bachher,
my “mentor” in Canada, has been and hopefully will continue to be
a source of encouragement and ideas. Nitin Amersey, who was and
remains instrumental in backing my efforts at launching The Midas
Touch, a magazine on global and Indian investments, and who con-
tinues to work closely with me on several projects. And Rajendra
K Kothari, Partner, PricewaterhouseCoopers, whose insightfulness,
guidance and forthrightness I have been fortunate to have.
Needless to say I am extremely lucky to have stumbled onto Nick
Wallwork, publisher, John Wiley Asia, with whom I’ve had many an
enjoyable conversation discussing and debating this book at vari-
ous stages, and to two very patient editors: Janis Soo; Wiley Asia’s
managing editor, and Micheal Hanrahan, this book’s exceedingly
competent copy editor.
Aaron Chaze
Toronto, Canada
June 2006
INTRODUCTION
Millions of Indian investors have already capitalized on the superb in-
vestment opportunities created by the strength, resilience and growth
of the Indian economy over the last few decades. I feel strongly that
the story of the wealth-creating opportunity that is India should now
be shared with investors in the rest of world.
This book seeks to uncover the investment opportunity in India
for a global investing audience. India is the new investment frontier,
the place where the next “gold rush” will happen and is already
happening to some extent. Misconceptions and myths about the true
nature of the Indian investment opportunity are considerable. That
became alarmingly apparent to me after I moved to North America.
I decided to do something about the myths, the gaps in knowledge
and plain ignorance that much of the world has had about India for
so long. The rise of China has been a blessing for India since inves-
tors across the world, having seen the Chinese miracle unfold, now
increasingly accept India as the next and probably last miracle mega-
economy. However, they lack the knowledge on how to benefit from
India’s rising status as the next economic superpower. Hence the
need for an investors guide to this market.
It is my hope that the book is actionable for both existing and
future investors. The book will have served its purpose if it success-
fully unveils the depth and quality of the investment opportunity in
India and whets the reader’s appetite to begin a rewarding journey
into a market that is even more fascinating and multi-faceted than the
country where the underlying assets are located.
xii INDIA: AN INVESTOR’S GUIDE TO THE NEXT ECONOMIC SUPERPOWER
The book is divided into three sections. The first section showcases
contemporary India and takes the reader through the economic, fi-
nancial, political, intellectual and social developments that blended
to create this superb investment canvas.
The second section is a guide to creating wealth from this invest-
ment canvas. It brings out the various investment themes, companies
and industries at the forefront of India’s new economic expansion,
and provides clear pointers to the key drivers and catalysts of growth.
It details India’s corporate history, and paints a picture of what was,
what has changed, and what that means for an investor looking at
India afresh or for the first time.
The third section discusses the threat and opportunity facing India
as it confronts its growing energy deficiency. It presents key lessons
for India from the growth path blazed by China, and provides a per-
spective on the India–China economic rivalry.
For all its fantastic potential, India still has many problems to ad-
dress. The key one is ensuring that the benefits of the new eco-
nomic growth quickly reach all segments of society especially those
that need it the most. The devastating reversal suffered by the NDA
government in the 2004 elections was a warning to the political class
that the benefits of growth are to be felt and not just seen by the vast
majority of the population.
Serious investors will have to do more study tailored to their spe-
cific circumstances, objectives and risk tolerance, but I hope that
reading this book will be the beginning of a profitable journey into
the world of investing in India.
