Impact of ADAG on India?

Well not long ago in India there was a business group called the Ambani group. When we met as journalists or as analysts we were told that the younger brother Mr. Anil looks after finance.

Then one day Mr. Anil Ambani wanted out and the elder brother said ‘let us split’ . So they split. Mr. Mukesh Ambani had spent a lot of toil but gave up Communications and Finance.

Then the market capitalisation of Mr. Anil Ambani skyrocketed. Typically Reliance Capital, Reliance Communications and Reliance Power were the 3 companies of his ‘group’ which was giving him ‘market cap’. So big was the ADAG that its market capitalization was ahead of the Tatas, Birlas, ….and all such bigwigs. This meant other Indian companies said ‘We must enter financial services, retail, and communications’ . Simply cash-flows did not matter, it was only ‘Market Capitalisation’. Understandable. If you are a 3rd, 4th, 5th generation entrepreneur and your market cap being less than this start up was ….

So Birla, Tata, Religare, Future Group, …all of them entered financial services (have entered or will enter). This is normally good for the consumer if not for the industry (look at cars, aviation, etc.). However not much has happened, well as of now at least it has created copy cats that is all!

So if you think brokerage rates will come down, demat charges will go to an absolute (fixed per annum) charge, there will be a life insurance companies selling only term insurance, pigs will fly, quality of service will improve because of the competition, etc., stop dreaming, wake up quick!

In financial services more competition has meant more velocity of transactions – so the total brokerage will go, but the client need NOT make more money….that is the way Goldman Sachs  and other stalwarts have shown the way!

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