The Most Valuable Companies in the world

This is an in-your-face rudimentary piece, analysing the companies with highest market capitalization in the world. The “analysis” is limited to tracking of the market cap Top 10 over the last 3-4 years as well as some juxtaposition with Fortune 100 List (by revenues).

Super 7 : OK…so as many of you would be aware of, there has been a change in the world order of most valuable companies in the past 2-3 years. The Super 7 “Consumer Internet/Tech companies” (FAGAM – Facebook, Amazon, Google, Apple, Microsoft and the Chinese entrants – Alibaba and Tencent) have been in the Top 10 for the past 2 completed quarters – CY2017 Q1 and Q2!! We loosely club Apple and Microsoft also in this group, given their stratospheric growths following the explosion of Internet penetration through smartphones and browsers. Barring Microsoft and Apple, all 5 companies would not have been around 25 years back!

Top 3 : Of the 7, the old two – Apple and Microsoft have been in the Top 10 for the past 27 quarters at least (I have data since 2011). Google (name changed to Alphabet in Q42015) joined them in Q2,2013 and hence has been in the List for the past 18 quarters flat. For the last 9 quarters, these 3 companies have been in Top 3 of the List, and in the order of Apple, Alphabet and Microsoft!! Google overtook Microsoft in Q3, 2015 and has stayed at No. 2 ever since!

The latest completed quarter – Q3, 2017 had the following rankings :

  1. Apple
  2. Alphabet
  3. Microsoft
  4. Amazon
  5. Berkshire Hathaway
  6. Alibaba
  7. Tencent
  8. Facebook
  9. Exxon Mobile
  10. Johnson & Johnson

Old world companies : Berkshire, Exxon and J&J form the minority in the Top 10 from “old world” companies. Let’s see how the top order looked like in the past few years…going back to the 4th  quarters of the past few years…in Q4,2016, the other old world companies in Top 10 besides these 3 were JP Morgan Chase, GE (remember?), Wells Fargo (Amazon was the 4th Internet company in the List). This Top 10 List was identical a year back in Q4,2015. In Q4,2014, Petro-China and ICBC figured instead of GE and JP Morgan Chase in 2015. Walmart was there instead of Amazon (poetic justice J).

Hope the above gives a flavor of the biggies of the old world, which had ruled this List for a few decades, and how swiftly the order has changed in the past 2-3 years!!

Market cap vs Revenue : Just as an academic exercise, we juxtaposed the above List with the Fortune 100 List based on revenues. Walmart is the biggest company in revenue, followed by three Chinese Govt companies, followed by Toyota, Volkswagen, Royal Dutch Shell.

In the Top 10 of this List, we find three of our old “valuable” friends – Berkshire at No. 8, Apple at No. 9 and Exxon at No. 10. None of our other 7 in Top Market Cap companies figure even in the Top 20 of Fortune List. Amazon is the next one to come 26th!!

So, obviously, there’s a current disconnect between revenues and market capitalization. People are betting the currently higher-valued companies are going to grow much faster than the currently higher-revenue companies, for a long, long time. At some point of time of course, profits or profitability of these valuable companies need to start shooting past the current Goliaths of revenue!

Amazon has done to Walmart what Walmart did to other retail stores 30-40 years back. Microsoft has out-paced Intel and IBM and Dell. History of Top 10 has been very colourful. Super 7 cannot take their seats for granted. Having said that, the avg market cap of top 6 Internet companies is 625bn USD vs 350bn for the top 4 old world companies. Some feel that the gap is too big to be bridged easily and soon. But then history has been a cruel teacher…

(As we publish this blog based on Sep 30 rankings, I see that Oct 31st ranking has seen Alibaba overtake Berkshire!!).

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Re-building Indian Realty…step-by-step

This article of mine first appeared in Mint, Nov 2017

The Minister of State for Housing and Urban Affairs, Mr Hardeep Singh Puri tore into the real estate sector this week citing that the “biggest fall-outs affecting the long-term growth of the real estate sector came from project delays, diversion of funds by builders, one-sided builder-buyer agreements, unfulfilled promises and lack of finances”. The intermediate step between the above factors and the Industry not doing well was the current state of crisis of confidence on the part of consumers stemming from possibly, the same factors that the Minister alluded to. Members of the Real Estate Industry can no longer sweep these reasons under the rug, since these have become big enough to threaten the viability of the sector itself, or at least a part of the sector.

So, what should the different players – Real Estate Developers, Government, Intermediaries (Brokers), Online portals and You, the Consumer – do differently, for this Sector to do well in the long term? “Doing well” does not only mean that people start buying more homes than today and prices start rising. Doing well would encompass a deep correction of practices and building up of a long-term confidence in consumers.

Government : This is the only entity in the entire eco-system which seems to have taken the bull by its horns and done the most progress in the past one year. Starting from DeMonetization to establishing the RERA to launching a slew of measures enabling affordable homes, the Central Government has indeed walked the talk in its contribution to repair the malaise. However, the Govt should have introspected that cash has come into this sector not because the Developers want it or because the consumers want it, but this has come largely  from a historical demand of cash from the local authorities giving approvals for Projects. The maze of up to 50 approvals needed for every Project encourages this rent-seeking behavior, in turn encouraging mediocre Industry participants, and finally discouraging clean business houses from entering this Sector. State-wise variations in construction norms, occupancy certificates, joint development rules again discourage from large national players emerging in India. Since relationship with local authorities is sadly a critical success factor, we see most of the Developer companies expanding to 2-3 cities at the maximum. A true stream-lining and standardization of these on-the-ground processes and policies at state level and local municipal level will take this sector ahead by 10-20 years! Automating and making online all these processes is the only way forward. This will get a huge pushback from the ground in various states and various local bodies. But no Central Government has been as strong and as determined as the current one to make this happen and thereby, create the roadmap for a 25-year bull-run in real estate!

Real Estate Developers : The main protagonists in this Sector need to heed the lessons from other sectors which got regulation forced down their throats because of the excesses being committed in the sector (remember, Life Insurance?). No self-respecting entrepreneur wants to hear what the Minister of Housing has said last week about the Sector and in effect, about the players in this sector. In all other industries, Consumer is the king; what is good for the consumer is good for the business. Real estate sector is not being run on Mars! The same rules of business and long-term prudence should apply here too.

We need to fight on the basis of superior construction, smooth deliveries, after-sales service, great brands, and finally, superior & predictable returns to the Investors. In the process, we would have to engage with the Central Government on ways to solve our predicament of local approval policies. The great news is that there are quite a few real estate companies in India which are trying to run their businesses on sound business principles. It is the longer tail of companies which is trying to win through short-cuts, and these should be reined in urgently. RERA has fired the first salvo; if the local approval processes are cleaned up, many of these smaller companies would lose their dubious competitive advantage on their own and fall by the wayside. Till then, the prudent companies need to continue to walk the talk, supported by RERA, and grab share through robust business strategy and excellence in execution.

Brokers and Online portals : Brokers have a duty to be on the side of the consumer and to explain pros & cons of the deal. Most of the brokers in India are local brokers and continue to live in the same locality as the consumers do, after the deal is done. So no broker wants to lie to the consumer or pull a fast one, since he is going to meet the consumer daily in real life, after that. Still, the broker community has a bad name in the market, and should take pains to work on that. Possibly, it is the proverbial rotten apples who are spoiling the perception of the lot in the market. In any case, now that all Brokers have got registered under RERA, they should understand the implications of the same, and try to play by the rules.

We need to win business through hard work, more options shown, understanding clearly the needs of the consumers, and acting on behalf of the consumers. There is of course revenue pressure and the kitchen fire to be kept warm, but abiding by the above principles will also bring in more wealth in the long run.

Online portals have done a good job so far in de-mystifying the Real Estate market and making the “discovery” process for the consumers much easier. They need to continue to work to improve the quality of listings by verifying the listings more, and thereby giving the consumers a what-you-see-is-what-you-get experience.

Mr & Ms. Consumer : You have got the Central Government, the big daddy, looking out after you now, protecting you with the RERA clauses. Your money will be used in the Project you have bought into, you will get what you saw in the marketing brochures, no changes will be made in the Project Plan till 50% of your Building mates agree to that, you will get a penal interest if your Project is delayed.  You need to start walking with a swagger, be more confident and assertive of your rights. You need to be more aware of what you are buying, the agreement you are signing, the long-term investment prospects, the best loans available. You need to help the Industry by selecting the right developer by looking at track records in construction, delays, quality and very importantly, in delivering-what-they-promised. The good Developers need your support in out-shining the rest, and in building a great Industry. This may be the largest investment decision you make – you owe a responsibility to your family that you have really thought through this.

Finally, you should stop thinking that your real estate investment is going to give you 50% p.a. returns. As our country’s economy matures and sectors develop, equity and real estate should continue to give you Fixed Deposit + 7-10% returns p.a.. There is no reason why any investment will give you super-normal returns, going forward. In fact, you should run away from anyone promising you >20% returns in any asset class.

Whew! That’s a long list of to-dos for all the constituents of the Real Estate market, for the sector to start doing great. However, the die has been cast and many of the above moves have  begun already. The India Real Estate juggernaut is all set to roll. The next two decades might well be remembered as the golden era of Indian Real Estate! But we all have work to do before that!

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Making sense of recent trends in Indian Real Estate

This article of mine first appeared in Moneycontrol Nov 2017

This is a factual article, with no forecasts or outlook of the market, but helping in understanding more the actual trends in Indian Real Estate sector in the past two quarters (Apr-June 2017 and Jul-Sep 2017).

New homes launched

As per the PropTiger-Housing Data Labs report of Q2FY18 (Jul-Sep 2017), Developers had launched Projects with an average of 46,000 homes (units) in each of the four quarters of FY17 (Apr 2016-March 2017). Thus, about 180,000 homes were launched that year. Launch means announcing the commencement of sale of a Project, with proper Plan of the building etc..  60% of these Units were launched in Pune, Bangalore and Mumbai, almost equally between these three cities.

 

Number of new units launched fell from the above average of 46,000 to 29,000 in Apr-Jun quarter of 2017, and further to 22,000 in Jul-Sep 2017! Of this 22,000, 14k came from Mumbai + Pune – a whopping 63%! This matches with the fact that of all the states in India, Maharashtra has been the first one to get its act together on RERA. They stuck to the May 1-Jul 31 “settling down” period, and have taken actions accordingly. That 63% of new launches in India have come in Mumbai and Pune clearly shows that RERA having stabilized in Maharashtra, Developers have got back to work there.

Other states still seem to not have got their complete act together on RERA. The reasons for dragging their feet could be different. The most uncharitable explanation being given is the strong nexus between local government and builders. At best, we could blame the delay on execution sluggishness. There is a significant risk that this unstable environment will continue in such States for a few more quarters, and we can see number of launches subdued in these states.

It remains to be seen that after RERA stabilizes, will number of launches go back to the 46,000 units quarterly level again ? Or will the RERA clause of setting aside 70% of the Project funds in an ESCROW account be a slight deterrent and Launches may not go back to the original level immediately ?

Homes purchased

Let’s look at Sales now. How many units were actually bought by people in the above time periods ? Again, going to the Data Labs data, we had seen that people purchased an average of 51,000 units per quarter in each of the four quarters of FY17 (Apr 2016-March 2017). Thus, about 200,000 units were sold in that entire Year. Again, not surprisingly, 60% of these units were sold equally between the three cities of Bangalore, Pune and Mumbai. This fact has to be seen in the perspective that just 3-4 years back, in FY13 and FY14, 40-50% of homes sold were in Delhi NCR! So, the Indian real estate sector has seen a composition mix change in the past 3-4 years, something which some Analysts have glossed over. Further, Bangalore and Pune had no business being equal to Mumbai in sales, since Mumbai is about 3 times Bangalore and 5 times Pune in commercial size and strength. This hence showed the relatively poor performance of Mumbai, an over-priced market. Bangalore and Pune continued to gain from the inward migration of graduates following the employment generation in IT sector. Bangalore also stole a march by cornering most of the Internet start-up jobs. New homes clearly follow jobs. Mumbai managed to salvage some pride with some growth of late in the BFSI sector.

Let’s see now as to what happened in the past two quarters in sales. Apr-Jun 2017 saw 53,000 units being sold, just above the average of FY17, despite a crunching fall of new units launched from 46,000 to 29,000 as described above. This is because the proportion of new launches in sales has been falling progressively over the past two years, from a high of 40% 2 years back to 20% now. Hence, the impact on sales was not immediate. Sales however fell in Q2 (Jul-Sep 2017) to 45,000. The double impact of low launches in Q1 and Q2 should be felt on sales in coming quarters.

Sales have fallen to 45k, again 43% coming from Mumbai+Pune. But this is not too different from past, when top 3 cities used to give 60% of sales – it’s 59% even now. Hence, looks like consumer psyche has not changed too much because of RERA (which makes sense – if anything, sales should increase because of RERA protection). However, the 18% across-the-board fall in sales has possibly come because of confusion in GST on property prices, and that’s a national phenomenon.

Three Key segments

Let’s now take a quick look at data on everyone’s favourite – the affordable segment! While there is much brouhaha of late about Affordable houses selling more, houses priced below Rs 50 lakh were selling 56% of total throughout FY15 (Apr 14-Mar 15), fell to 52% in FY16 and remained at that level in FY17 (except Q4FY17 when it shot to 58%), and has been in 52-54% range in FY18 also. So this segment has been fairly constant in the past few years!

A further bigger insight from the above is that majority of this segment sale is in the Rs 25-50 lakh segment and not in the <Rs 25 lakh segment. In fact, the <Rs 25 lakh REAL AFFORDABLE HOUSES have been in the 17-19% range of total sales for the past 3 years, having inched to 18-20% now. The Rs 25-50 lakh segment saw 35% of all sales happening in that segment. So, it is some time before the Government’s dream of true affordable houses really takes off well.

Let’s round this piece up with a look at sales in the Under-construction vs Ready-to-move in (RTMI) Units. 16-17% of the total sales done were in the RTMI segment, rest being under-construction sales. While RTMI units sold in the Market have increased from 10k per HY to 20k over last 2.5 years, in absolute terms, they are still 16-17% of the total primary units sold.

So all in all, the Indian residential real estate market is poised at an interesting juncture. Even as we speak, the festive season has been largely disappointing. Industry insiders would be well-advised to look at the trends within trends and shape their plans accordingly not to get disappointed in the medium run.

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Online home buying in India – where have we reached ?

This article of mine first appeared in MoneyControl Sep 2017

The commercial Internet has been around for more than 20 years in India now, and the smartphone for about 10 years. This potent combination has resulted in this century being what I call the Internet-Smartphone Century. This combination has driven many of our daily purchases “online” or mostly “on-mobile”. It started with books, flowers, then mobile phones, other electronics, apparel, and of late, furniture and grocery! This piece explores the status of buying homes online, and if we have achieved any sort of scale on this front.

The short answer to the above question is “yes, indeed there has been good amount of progress”. Most of the online real estate companies in India (and for that matter in the world) so far are classifieds platforms, where the buyer looks for apartment choices and in most cases connects with the broker who’s advertising that apartment. Then the process moves off-line with that broker showing that apartment and in most cases, a bunch of more apartments. Hence, many online sites in India today are more a “broker-finding” site rather than “apartment-finding” site. And which is perfectly fine – as long as the consumer problem of finding an apartment is getting solved.

However, out of the two problems of real estate buying, viz Adequate choice and genuine apartments, both are partly being addressed, with the process moving to the age-old broker-led process very soon. Only select portals have been able to hold on to the quality of listings (apartments) by verifying as many as possible. And the choice of apartments swiftly moves to getting relegated to the choice that your selected broker has.

In any case, one would not have imagined a huge number of apartments being purchased completely online like e-commerce goods on flipkart and amazon. Many of the customers (whether in India or in other countries) would like to make a visit to the apartment or the land on which the building is going to come up – to get a first-hand view of the location, locality and approach.

However, the positive progress that has happened on this front is that the real estate portals have increasingly started giving as much information as possible online, and have thus, increased the percentage of decision-making online, thereby reducing the offline part of the decision-making. This has resulted in narrowing the short-list online, not making unnecessary site visits.

Who is online buying more suited for? Online buying is more suited for NRIs, Cross-city domestic Investors and time-strapped white-collar executives – essentially, consumers who do not have the time to do a site visit (or multiple visits, as is the normal case), and most probably who are buying as an investment rather than for end-use. I myself bought a 2-BHK apartment as an investment from a reputed developer largely by looking at their plans on paper, and seeing the location on Google maps. The site was a piece of land, whose shape would anyways, be completely changed by the Developer who is building 10 towers there.

Another factoid that we have observed is that many online buyers from the categories above prefer well-established Developer brands to buy their apartments from – a brand which they can trust on delivery, on quality of Projects and on not taking the consumers for a ride.

What should online real estate sites provide ?

From the home-seekers’ perspective, one would like to have the following information, as a dream buyer’s list, for one to be able to take the decision of buying online :

  • Location of the site on Google Maps; distances and path from 2-3 key places in the city
  • Actual videos or walk-throughs put up of the site on which my building is to be developed – multiple videos, comprehensively, showing :
    • neighbouring plots of land and buildings on them
    • possible buildings which may come up on neighbouring plots of land
    • approach to the proposed tower
    • walk-through tour of sample flat if available
    • proposed security arrangements
  • 3D walk-through views of the Project, towers, amenities; walk-throughs of the proposed apartment
  • Price trends in the locality, for the past 4-5 years; estimated price appreciation possible and why; need to see potential IT parks, office hubs, growth hubs on a map or an animated video
  • Prices of neighbouring projects
  • Short 4-5 line note on why is the price of the selected project a good deal
  • Map of site, along with schools, colleges, restaurants, malls, places of worship (based on religion of the customer) plotted in 10-min, 20-min, 30-min walking radius
  • 8-10 lines on why this Builder is a good Builder : completed number of buildings, apartments
  • Approval of Banks to the Project for Home Loans and a description of the Due Diligence they have done
  • Names of Lenders / PE Investors in the Developer HoldCo or in the Project SPV and their background, and their Investment thesis behind making their investment.

If I get the above information online, I am definitely going to be more inclined to hit the “pay now” button for the apartment. Will you ?

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M&As in Indian Businesses – Looking at the Key Imperatives…

This article first appeared in the print edition of the magazine “People Matters” – Oct 2017

The Indian economy and businesses have seen a high-growth phase almost ever since this new millennium began, more so after 2003. This phase has even survived the 2008-9 Global Economic Crisis without too many scars to show for it. This piece will focus on the Imperatives behind M&As in Indian businesses and post-merger impact in different cases.

Two key imperatives for NEW businesses in fast-moving economies are completing their business models and acquiring scale, i.e., grabbing market share – both to be done as little time as possible. This is necessitated so that such companies can either build a sustainable competitive advantage, often referred to as a Strategic Moat in new start-up parlance, or become the 800-pound gorilla in a winner-keeps-all market. Helping them in this quest are venture capitalists and strategic investors, by funding them for the above pursuits. And the quickest way to do all the above three imperatives is to go on the inorganic route, i.e., to acquire or merge with other companies.

Let’s look at each of these two imperatives, with sub-components and with some examples if possible.

Completing the Business Model : Many of the M&As (mergers or acquisitions) have been done to acquire some line of business, which would complete the portfolio of sub-businesses that a strong company should have in that space. This may not necessarily be a diversification as the case used to be in older times, but could rather be acquiring a new product vertical or geography or even a customer segment.

New product lines or customer segments – Flipkart’s acquisition of Myntra, Amazon’s of Whole Foods or merger of PropTiger and Housing are all examples of this objective for the M&A.

Flipkart made a quick entry into the apparel product market, Amazon did a business model augmentation with an online-offline combination, and PropTiger also completed their stable-state business model with the merger, becoming the only integrated online-to-offline real estate company in India.

Other examples are Facebook’s acquisition of Whatsapp, Axis Bank acquiring Freecharge, Microsoft acquiring Skype.

New geographies – To enter new countries, Zomato acquired (and later on shut down some of them) food tech companies in Europe and the USA. Long back, Airtel had acquired the businesses of Hexacom in Rajasthan and earlier those of Jasmin-Telia in Karnataka and AP to enter into these geographies. Of course, sometimes there is a nuance of regulation forcing companies to do such types of acquisitions (like in Airtel’s case, licences were given state-wise and these M&As were more to get those licences).

Acquiring scale : Some M&As are done not to enter into a new product or new customer segment or new geography. But these are done to quickly acquire scale in their mainstream business, and thus acquire leadership position and deter newer players from entering or become a favoured destination of funding. With the Consumer Internet paradigm of one or two players finally surviving in each sub-sector, VC funds also take up bets quickly in each market and each sub-sector on which 2-3 players to double up their funding on. If you are a late entrant into a sector, you need to quickly acquire some businesses and build scale to become one of these favoured companies. Ola’s acquisition of Taxi-for-sure, or Quikr Homes’ acquisition of CommonFloor are examples of this type of imperative.

Examples from “old-economy” sectors are Vodafone-Idea merger to fight challenges thrown by Jio (and Airtel), HDFC Bank’s acquisition of Times Bank, Centurion Bank, and Birla Cement business growing through acquiring multiple smaller cement companies.

Let’s look a bit at the post-merger situation in the two types of imperatives above. In most of the cases where the Business Model gets completed, the mergers hardly produce too many ripples since most of the components are symbiotic and non-overlapping. Some top management layers may leave in some time as they become Vertical Heads in a bigger company from the business heads earlier. Some overlaps may happen in some central functions like Human Resources, Finance, Marketing. However, in cases where the M&A has happened to acquire scale, especially in the same geographical regions, then there are instances when there is overlap in the Line functions also like sales and local marketing. These are the times when there could be some higher redundancies, especially in team manager and area head levels in sales teams. Redundancies in staff functions also will be higher since these M&As are not to acquire a skill-set or capability, bit more for scale which is more relevant at frontline levels.

The Indian economy is poised at an interesting juncture. If we are able to grow at 8-10% for the next 20 years, there will be too many businesses having to move faster, funded by foreign funds. And too many cases of having to acquire or merge with another company to move faster than the economy and grab a place under the sun. As long as we remember the main objective behind the M&A, and execute with that in mind, there are chances we will have a successful M&A.

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Things you must check before buying a house

 This article of mine first appeared in MoneyControl in Aug 2017

Since there are multiple check-lists floating around the Internet on buying an apartment in India, this piece will cover some of the essential points out of those, and dwell on the more practicable and real ones among those.

First thing first, hire a Lawyer, paying him Rs 5,000 to Rs 10,000 to go through all documents on the land and the property – mostly, you won’t be able to understand those completely by yourself – Title Deed, Land Use, Approvals from Municipal Corporation, Occupational Certificate, 7-12 paper (Maharashtra). In case of resale, this will cover receipts of Property Tax paid and Loan Release document from Bank in case of fully paid up loans on the property.

Estimate the Total Cost of Ownership, adding Parking charges, Stamp Duty, Registration charges, new furniture / furnishings that you may have to purchase. These all could contribute themselves to 5-20% of the bare cost of the apartment.

What is the final usable area of the apartment, especially in case of apartments under construction? Most of the times, the sale would be on super-built up area. You need to be comfortable with the liveable area you will finally get to use.

Estimate total cost of running the home? This will include Maintenance charges, Property Tax, increased commuting charges as compared to your present place. Please ensure that this fits in your monthly Budget.

Check whether most of the other occupants in the building are like-minded and in the similar age group. If the residents are not like-minded, conflicts emerge eventually over how to maintain the building, adjusting on parking spaces, whether pet animals are allowed in the elevator. I would avoid staying in buildings with a mix of 1BHK, 2BHK, 3BHK apartments – different budgets and income levels of occupants – will cause grief in the long run.

If you are buying the apartment as an investment, think through the profile of your typical tenant and whether the location of your apartment is good enough for such a  tenant. If it is a commuting couple, is the apartment close to the railway station? Is there a parking space? Will they require two parking slots?

Speak with the building watchman or the watchman of the neighbouring building in case your building is under construction to find out the situation of water supply, electricity supply, availability of domestic help, level of security & safety, neighbourhood grocery stores, deliveries from restaurants, exercise gyms, day care centres, hospitals and schools, depending on your life situation, and your need.

Think through if some neighbouring small building or bungalow has the potential to be converted into a taller building and will it block your view in the coming 2-3 years? Ask around from the security guard of such buildings if there is some discussion going on for redevelopment.

Find out whether the Home Loan you are thinking about is the cheapest loan? Explore rates for woman co-ownership or senior citizen, if applicable. Customer service in private sector banks and public sector banks is not too different in Home Loans since our interaction is minimal on an ongoing basis. Hence, fish for the best rate.

Discuss with the seller upfront on cash component if any. These things spring up at the last moment, and most of us do not have access to large amounts of cash.

If you are buying the apartment as an investment, please ensure that it fits in into your overall asset allocation, and that you have a balanced mix between equities, debt instruments and real estate. I would recommend a 40:20:40 mix between the three for investors below 50 years of age. Also, calculate your annual returns from the real estate as a combination of 2-3% rental income plus expected capital appreciation less maintenance charges.

Find the average range of prices in the neighbourhood by asking around. One should speak to people in 2-3 neighbouring buildings to get an idea. There could be a range of 5-10% difference even within neighbouring buildings, depending on quality of construction, exact configuration of apartment, etc..

If you are buying an under-construction apartment, then visit buildings delivered already by the same Builder to check out on quality of his construction, assuming that that would be the minimum quality he would deliver here. You can ask occupants of that older building whether the Building was developed on time, whether the Developers handed over the building to the Society amiably, etc..

So all in all, buying an apartment is possibly the biggest decision you would take, ranking after your marriage and your having a child. You have a responsibility towards yourself and towards your family for doing all the above due diligence before buying your apartment, so as to ensure that “What you thought is what you got”!

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The role of Purpose and Passion in a start-up

While a fantastic product, a disruptive business model, and adequate funding are the established critical success factors for building a new company, the last 40% of success comes from a majority of the employees working towards a purpose, and having a passion for that. Without this, we may end up with 80% success; with it, it may go to 120% (hence, the last 40% :) ).

Purpose comes from addressing some important need of a large swathe of the population, making their lives better. In the process, one ends up building a high-quality MISSION-DRIVEN & PROFITABLE business. Many a times, the founders of the business, and possibly few of the Unit leaders, and some Product managers are the ones who remember the purpose, and work towards it. The majority of the employees then are left out, just doing a job! And that’s a monumental waste of a purpose!

In one of the mobile telecom companies that I worked for, the founder-entrepreneur used to speak about connecting all Indians, solving daily-life problems using mobility, and adding value to customers through providing relevant information. He got a video made showing him taking an auto-rickshaw from the airport and meeting many people on the road, whose lives had been transformed because of the mobile phone. This video was shown at all employee cafeterias across the country, and seeing this filled the people with pride that we are making a change to the lives of people…we are building the nation.

Similarly, in a wealth management company that I myself led later on, we were passionate about Financial Planning for our clients. We wanted entire India to become “Financially Planned”. People had to be aware of investing / saving for life goals, and we used to preach the virtues ad nauseam. Customers who went through the Financial Planning exercise had tears in their eyes holding a copy of their 40-year family Plan which would lead to their children getting educated in great schools, and they themselves, being well-prepared for retirement.

Many of the businesses have some stated purpose. But many of these fail to communicate this among their employees. I think this should be communicated and over-communicated at all times. This increases engagement of employees by 50% (again from my famous levels of 80% to 120%). While some may find it gimmicky, we need to print the Purpose on small cards to be kept in a wallet by all employees. We need to make videos of customer testimonials about how our purpose has helped them improve their lives. We need to review our regional business heads, in addition to revenues & profits, on execution of this Purpose, through some smartly designed KPIs.

Coming to Passion, this is a bigger component of organizational success. Purpose drives a significant part of passion. Some of the other sub-factors building passion among employees could be :
• Being treated with respect by the senior management – majority of people work for respect, and want to be treated well
• Awareness of the larger goals and ambitions of the company, and awareness of the role (however small) that each employee is playing towards that goal
• Transparent and meritocratic system of evaluation and rewards, as well as of consequence management.

The list for building passion among employees could be longer, but keeping in context of this article on Purpose, shall restrict to the above. Compensation, ESOPs and getting bright people together could take you to 80% success…but only few companies are able to hit the 120% levels…consistently…and on purpose :) . All the best!

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Xenophobia, Humility & softer aspects in a merger

So, when two companies merge, the inter-personal dynamics of leaders – level 1, 2,3 is one of the major make-or-break factors for the success (or lack of) of the Merger. Are the leaders engaged in a turf war ? Is someone thinking that the more the info one shares, the more vulnerable will one become ? Are leaders thinking that if I don’t fight hard, my people will think that the other group is walking over their boss ? Post-right-sizing, is some leader still thinking that if he quickly builds up his empire, he will be safe from another round of right-sizing ?

The Top Leadership team needs to allay fears such as above, and step in on a continuous basis to ensure that Level 2/3 leaders don’t fall into any of the above traps. For this, the Senior Leaders will have to over-communicate with and counsel teams on the basics of “natural xenophobia” and humility. By natural xenophobia, I am referring to the notion that many (in fact, most of) the leaders have that whatever we were doing on this side of the merger was the only way to do this thing right…the other party has swung from a tree and come to the meeting room…all collective IQ of the world resides in my team, and we will whack the other team, with our hands tied behind our backs, and blind-folded…hopping on one leg! (OK, I concede…stretched things a bit too far:)).

This brings me to the surprising (for some) element in the mix to making mergers successful, and that is Humility. The Top Leadership Team needs to continuously coach their Level 2/3 leaders on the virtues of humility. It is very easy to sound arrogant, appear to be stone-walling the other side during the early days of the merger. Some of this may arise due to the xenophobia that I mentioned earlier. Some of this may arise from the feeling of “our side is better” syndrome. Most of the times I have noticed that people on both sides are inherently nice, but the initial behaviour is not friendly. This is mistaken for arrogance, high-handedness, and may lead to non-co-operation if not checked in time. Establishing oneself as the bigger leader many times leads to over-stating ones’ achievements, and may reek of hubris.

What should / could the Top Management do to avoid such a situation ?
• They need to monitor interactions in the sub-task-forces set up for post-merger integration. Any signs of “implied arrogance” have to be nipped in the bud.
• Should share CVs / linkedin profiles of function heads, sub-unit heads with each other, so as to introduce them to each other quicker – everyone has done some great work in the past to have reached this stage of life
• Should share personal profiles – extra-curricular interests, family details, hobbies, favourite music, achievements with each other, so as to build out the human sides of the Unit heads
• Sanction Unit-wise additional budgets for merged leadership teams to go out for dinner and drinks
• Send to leaders from each side Reports and Articles developed by the other side, to firmly establish intellectual capabilities of the other side
• Get co-branded gifts developed (bags, caps, T-shirts) for all leaders from both sides
• Send letters to families of leaders, bringing out the might of the joint entity, and thanking them for their support.

The sooner people realise that everyone around the table is nice and are “people like us” only, the sooner the walls of pretences, artificial barriers and snooty behaviour can be brought down…and people can get on with the merged business…and after having made new friends!! It’s all in the collective minds of the teams…but sometimes, this has to be shepherded and brought out by the top management team. After all, it’s a merger of minds, a merger of hearts…numbers and results will follow on their own !!

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“The Golden Tap – Indian Start-ups…” – a quick review

So, completed one of my first non-fictional “un-put-downable” books last weekend, “The Golden Tap – The Inside story of Hyper-funded Indian Start-ups”. Written by Kashyap Deorah, a self-made serial entrepreneur (there’s a parallel entrepreneur explained also in the book :) ), an IIT Bombay grad, and quite obviously a man of unusual perspective.

While the title is a mouthful, the entrepreneur-author has hit a sixer with this book, almost serving as a compendium, a reference book of Indian Start-up scene (while simultaneously covering Silicon valley Unicorns and Chinese Unicorns too). Inter-mingling the above with his own “entrepreneurial autobiography” is a master-stroke, doubling his target audience at one go J.

Dividing the post-1994 era into three distinct waves – the Internet Wave (1994-2002), Globalization Wave (2003-09) and the Smartphone Wave (2010 onwards) makes it easy to understand the drivers behind the various companies founded and funded in these phases. That “Funding is sometimes more important than Founding” has been dealt with an element of disdain by the author, who easily is not impressed by the VC community too much.

The strategies of big Funds– Tiger Global, SoftBank, Yuri Milner’s DST, Rocket Internet, Naspers, along with prominent VCs – Accel, SAIF, Sequoia have been brought out in sufficient detail. “Out-funding competition” seems to be the common thought in this phase of the start-up scene.

The author describes two types of start-ups : one which take the game from 0 to 1, and the others which take it from 1 to n. The 0 to 1 are the game-changers, and the 1 to n could become the scale-changers. He bets on the 0 to 1 types as the multi-baggers.

That only three start-ups in India have gone for an IPO successfully – Naukri, Justdial and Make-my-trip bears testimony to the fact that the jury’s still out on the long-term sustainability of the thousands of start-ups that have mushroomed in India (4000-odd in the past few years, if I recall an article in ET or Mint). These three successful companies got funded in a slim window of 2006-07 at the peak of the Globalization wave, revealing the relative nascent condition of the start-up market in India.   

The stories of Amazon, JD.com, Facebook, Alibaba, Uber are great to read through. Comparing them with those of our current Indian unicorns leaves a bit of an uneasy feeling in our stomach on the lack of depth of Indian markets, and the over-valuation of current Indian companies. The author in fact, takes a bet on the international giants prevailing in India in the long run L.

Similarly, the regulatory arbitrage that killed the e-commerce forays of brick-n-mortar retail companies leaves an odd feeling – wonder why the indigenous “offline retailers” did not raise a sufficient hue and cry on the lack of a level playing field. Another regulatory arbitrage mentioned is how China protected its start-ups by not allowing American biggies to come in for the longest time, while Indian opened its arms to international enterprises and Funds. The “liberal and reformist” path that we chose couple of decades ago forced us not to think of any other way we could have done this.

The IIT / Stanford / Wharton common thread running across the start-up scene has been brilliantly brought out. Some of his observations were downright funny – Lee Fixel liked founders with single or worst double digit JEE ranks and preferably North Indian Marwaris / Baniyas – was priceless!

The author of course carries his (single) JEE rank through a couple of occasions in the book. But then what the heck, he’s earned that!

The golden embossing on the hardback cover (“THE GOLDEN TAP”) is fading away after a couple of weeks in my hands – quality of Indian printing may have some way to go. But the quality of the content is top-notch :) . Waiting for a Part II from the author in 2020!!

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India’s Most Respected Companies…

…are mostly not Indian L. 4 of Top 6 Most respected companies are Indian subsidiaries of global non-Indian companies – Google India being No. 1, Microsoft No. 4, BMW India No. 5, Merc-Benz is No. 6. Only the two Indian IT stalwarts, Infosys and TCS grab the Ranks 2 and 3 respectively. In the Top 25 companies, 9 are Indian subsidiaries (IBM, Amazon, Honda, Samsung, Coke being the remaining 5), 5 are PSUs. Of the remaining 11 in the Top 25, I am counting HUL, ITC, L&T as Indian companies!! 3 of the 8 Indian-Indian companies are Tata group companies – TCS, Steel, Motors. Rest being Infy, Sun Pharma, HDFC Bank, Apollo Hospitals and Raymond.

This are the findings of a Survey of Most respected Companies in the latest Business World.

Coming to the methodology of measuring “Respect” : 350 companies were selected across 20 Sectors based on financial strength. >500 expert respondents in senior management positions across multiple companies (not necessarily working in these companies) rated companies OF THEIR SECTOR on 8 parameters (more on these below) to select 107 companies. These 107 companies were presented to the respondents again in Phase 2, and each selected Top 10 companies – for his selected Top 10 companies, the respondent rated again on the 8 parameters. Hence, each company had a Base of people who decided that this company was in his Top 10. And then an average rating for each of the 10 parameters (on scale of 0-10). Total of the average ratings was the RESPECT SCORE for that company.

So, the survey suffers from being based on perception of Respondents, and not on hard data as some other surveys are based on. Further, it’s tough to discern whether the Base is more important or the Average Rating (number of people who thought that the company was in top 10 vs Average rating itself).

Break-down of components of Respect : The eight parameters which are supposed to comprise Respect are as follows :

  • Innovativeness
  • Quality & depth of Top Management
  • Financial Return to shareholders
  • Ethics and Transparency
  • Quality of Products and Services
  • People Practices / Talent Management
  • Global Competitiveness
  • Technological Prowess.

I would have liked inclusion of a few more parameters – “Environmental contribution”, “social / societal impact”.

Returning to a few more of the findings :

  • When 500 people were asked for Top-of-mind “Most Respected Company”, TCS was No. 1, followed by Infosys, Google India.
  • Similarly, Least Respected companies were Kingfisher Airlines and Sahara Group (some confusion about RIL being in both Lists).
  • In Ethics and Transparency, 3 of top 5 companies were Tata companies. Infosys is No. 1 in Quality & depth of top mgt. Rest, on all other 7 parameters, Google India is No. 1.
  • Sectoral Toppers were (based on Total Base of people terming it as Top 10) are : Raymond in Apparel, Maruti Suzuki, Jet Airways, HDFC Bank, Samsung India, NIIT, Flipkart, HUL, Apollo Hospitals, ITC Hotels, L&T, Tata Steel, LIC Housing Finance, RIL, Sun Pharma, DLF, Shoppers’ Stop, Infosys, Airtel.

So obviously, Respect has to be earned, and it is a tough job. Indian companies have to work harder to do that. All the best, and kudos to all winners…

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