New Delhi, Oct 31 (IANS) Monopolies are the main agents of positive change in Indian society, investment banker Saurabh Mukherjea said on Saturday.
Speaking at AIMA’s LeaderSpeak programme, Mukherjea, who is the Founder and Chief Investment Officer of Marcelllus Investment Managers tried to break the general thinking that monopolies may always be harmful.
“The rise of monopolies in India is giving India a better deal,” he said arguing that disapproval of monopolies is a result of the socialist legacy but that would change as India embraces capitalism.
He said that most of the sectors of Indian industry are dominated by monopolies and the monopolists are the source of investment, innovation and wealth creation.
The session was moderated by TV Mohandas Pai, Chairman, Manipal Global Education, and was anchored by Rekha Sethi, Director General, AIMA.
Strengthening his case for monopolies, Mukherjea pointed out out that NBFCs, small cars, paints, adhesives, biscuits, baby milk powder, hair oil, cooking oil, pharma APIs, health diagnostics etc are among a whole host of sectors sectors that have monopolies.
According to his research, the top 20 companies in India generate 70 per cent of the profits of the corporate sector and their share will only increase in the future.
He said that in 1992-93, the top 20 companies accounted for only 15 per cent of the total profits. In fact, the top two companies in most sectors take 85 per cent of the sector’s profits.
The reason they can do so is that they have larger free cash flows and they reinvest two-thirds of the profits into growth and building barriers against competition. “The large swathes of Indian economy are controlled by 20-25 families,” he said.
He argued that price wars are not a route to a monopoly but having a secret insight into the market is. He said that the paint and the NBFC monopoly are actually data companies with superior market intelligence, which allows them to create and control segments and corner the best customers.
The monopoly builders are always quiet, focused people who shy away from media and do not buy sports teams or associate with film stars once they get rich, according to Mukherjea.
Pai pointed out that monopolies were seen as a danger to the society that distort markets by destroying competition and often make obscene profits. He mentioned that IT companies were not monopolies and yet they grew fast and generated huge returns.
Mukherjea argued that true monopolists’ strategy is to hold prices down to destroy their competitors. He said that most Indian monopolies raise prices by 1-2 per cent every year, at a rate much lower than the rate of inflation, which drains their competitors.
“By increasing prices slowly, monopolies suffocate the rivals,” he said. However, he added, such monopolies are great for the customers who get a much better deal.